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Old 01-25-2011, 11:59 AM
 
13 posts, read 36,268 times
Reputation: 18

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Here are the facts:
  1. Single family property purchased in 2005, subject to a mortgage of about $220K;
  2. At time of purchase, the seller (Developer) encumbered the Property with a Deed restriction prohibiting any renting of the Property. The purpose of the restriction was to maintain an "owner occupied" community;
  3. In 2011, Owner's job requires her to leave the state;
  4. Property is now worth approximately 50% of balance on the Loan (FMV is about $100K);
  5. Owner does not make enough to maintain Property in Nevada and rent another property in new state of residence;
  6. Owner does not want to let the Property here in Nevada go into foreclosure, and expected rental income would likely cover the mortgage payment;
  7. HOA has made very clear that it will enforce the "no rent" restrictions on all properties in the community.
Question:
What does the Owner do? She can't legally rent the Property because of the Deed restriction, but she can't afford to maintain the property. Is foreclosure or short-sale the only option? Has anyone heard of successfully challenging a "no rent" deed restriction, and on what argument?
Thanks for any insight on this issue, which I bet affects a large number of homes in the Las Vegas area.
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Old 01-25-2011, 12:27 PM
 
Location: NW Las Vegas - Lone Mountain
15,756 posts, read 38,066,910 times
Reputation: 2661
Quote:
Originally Posted by Vegas16 View Post
Here are the facts:
  1. Single family property purchased in 2005, subject to a mortgage of about $220K;
  2. At time of purchase, the seller (Developer) encumbered the Property with a Deed restriction prohibiting any renting of the Property. The purpose of the restriction was to maintain an "owner occupied" community;
  3. In 2011, Owner's job requires her to leave the state;
  4. Property is now worth approximately 50% of balance on the Loan (FMV is about $100K);
  5. Owner does not make enough to maintain Property in Nevada and rent another property in new state of residence;
  6. Owner does not want to let the Property here in Nevada go into foreclosure, and expected rental income would likely cover the mortgage payment;
  7. HOA has made very clear that it will enforce the "no rent" restrictions on all properties in the community.
Question:
What does the Owner do? She can't legally rent the Property because of the Deed restriction, but she can't afford to maintain the property. Is foreclosure or short-sale the only option? Has anyone heard of successfully challenging a "no rent" deed restriction, and on what argument?
Thanks for any insight on this issue, which I bet affects a large number of homes in the Las Vegas area.
Short sell it. There really is no other viable option. If the short sale does not fly you let it go to the lender...

Presuming it was properly drafted and incorporated no rent restrictions are allowable. I doubt even a BK court could override...these restrictions run with the property not the owner.

You could have an RE lawyer take a quick look for $200 or so...but I would not hold out much hope.
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Old 01-25-2011, 07:43 PM
 
13 posts, read 36,268 times
Reputation: 18
Unfortunately, that is my understanding of the current law as well.

However, there is case law in Nevada to the effect that restrictive covenants can be rendered invalid by changed circumstances. Notwithstanding, "changed conditions sufficient to justify nonenforcement of an otherwise valid restrictive covenant must be so fundamental as to thwart the original purpose of the restriction." Gladstone v. Gregory, 596 P.2d 491, 494 (Nev. 1979). The party challenging enforcement has "the burden to show the changed conditions have so thwarted the purpose of the [restrictive covenant] that it is of no appreciable value to other property owners and it would be inequitable or oppressive to enforce the restriction." Id.

Given the current real estate market in Nevada, I would think there is an argument that changed circumstances (e.g., the most severe economic downturn since the Great Depression) could justify nonenforcement of a "no rent" deed restriction. This would be especially true where the fundamental purpose of the covenant was to preserve the values of properties in the neighborhood, and where a short-sale or foreclosure will likely decrease the value of neighboring properties more so than having renters in the neighborhood. Further, equity would seem to favor a homeowner keeping a property as a rental over being forced into possible foreclosure.

Unfortunately, the normal homeowner doesn't have the financial capability to take a case like this through to the NV Supreme Court (which would be needed to make precedent) or through the Legislative process to change the law. I was curious if anyone had heard of a homeowner taking on the good fight on this topic. For the time being, however, looks like properties burdened by "no rent" restrictions will have to stay that way...
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Old 01-25-2011, 10:06 PM
 
Location: Paranoid State
13,044 posts, read 13,789,090 times
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Quote:
Originally Posted by olecapt View Post
You could have an RE lawyer take a quick look for $200 or so...but I would not hold out much hope.
+ 1 ^^

Question: What is the penalty/HOA remedy if you do rent it out?
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Old 01-25-2011, 10:09 PM
 
Location: NW Las Vegas - Lone Mountain
15,756 posts, read 38,066,910 times
Reputation: 2661
Actually the case cited defeats you...Almost totally.

The CC&Rs were found enforceable in that case.

To win you would need to establish some new and unexpected hardship.

That it would cost you money will not work.

Sorry
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Old 01-26-2011, 07:44 AM
 
Location: NW Las Vegas - Lone Mountain
15,756 posts, read 38,066,910 times
Reputation: 2661
Quote:
Originally Posted by SportyandMisty View Post
+ 1 ^^

Question: What is the penalty/HOA remedy if you do rent it out?
I would think an ongoing fine. Could also go to court and get an injunction but that would be a big deal.

They could perhaps escalate the fine until it exceeded the rent and then lien the place if not paid.

Get pretty tough if the HOA wishes to...
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Old 01-28-2011, 01:52 AM
 
6,360 posts, read 11,807,195 times
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Are there really that many covenants barring renters? Have not heard of many myself, but maybe there were some during 2004-5 when developers could get away with anything due to the high demand.
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Old 01-28-2011, 05:46 PM
 
Location: North Las Vegas
1,631 posts, read 3,940,499 times
Reputation: 768
Quote:
Originally Posted by Willy702 View Post
Are there really that many covenants barring renters? Have not heard of many myself, but maybe there were some during 2004-5 when developers could get away with anything due to the high demand.
Yes there are communities that don't allow renters or they allow only a certian amount of renters to maintaine the quality of life for the people that live in the community full time. And down the road it can help with property values. When you start having rentals in a neighborhood it could hurt property values.
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Old 01-28-2011, 05:51 PM
 
48,505 posts, read 96,519,768 times
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That ahppens all the time in contract law. She basically has to sell it at market to get as much as she can. I can tell you in her situation the HOA is much mroe able to stand under the contract and expense than her likely.Otherwise she would just sell at a loss. She neds to remmeber tha most attorney's are going to want cash upfront to represent her.
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Old 01-28-2011, 09:05 PM
 
Location: Las Vegas, Nevada
12,686 posts, read 36,236,739 times
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You'd think a short sale would hurt property values more than having a renter. We can't do anything about it in our HOA. One thing to keep in mind, if it's a small community they can't really afford lawsuits.

Olecapt, would a rent with option to buy contract override the no rent?
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