At one of the WeMAR Government Affairs Meetings in 2019, Vicki Frye mentioned that she had just experienced a Sun City West VA purchase fall out of escrow because the VA stated the HOA rental restrictions violated VA underwriting rules.
In fact, the loan denial letter her buyer received declared the entire condominium project was not eligible for VA financing. Why?
Because the condominium HOA governing documents limited rentals to 6 months or less. VA rules say rentals must be allowed and allowed for a period of at least one year. Here is the paragraph:
(Authority: 38 U.S.C. 3703(c)) (6)
Leasing restrictions. Except as provided in this paragraph, there shall be no prohibition or restriction on a condominium unit owner’s right to lease his or her unit. The following restrictions are acceptable: (i) A requirement that leases have a minimum initial term of up to 1 year; or (ii) Age restrictions or restrictions imposed by State or local housing authorities which are allowable under §36.4809(e) or §36.4854(b)(5)(iv). (d) Rights of action. The owners’ association and any aggrieved unit owner should be granted a right of action against unit owners for failure to comply with the provisions of the declaration, bylaws, or equivalent documents, or with decisions of the owners’ association which are made pursuant to authority granted the owners’ association in such documents. Unit owners should have similar rights of action against the owners’ association.
You may read the entire 38 CFR §36.4363(c)(6) at the Government Publishing Office website.
Buyer’s agents should make sure VA buyers are aware of this provision, so buyers do not attempt to purchase a home or condo that is not VA approved. Seller’s agents should ask their sellers to check their HOA governing documents for this type of rental restriction before listing a property with VA terms as acceptable.