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Locked out: More communities ban homes for lease

More Information

(Not) for rent

Neighborhoods can approve restrictions on rental properties if they have a majority vote from homeowners. That majority typically has to be about 75 percent of residents to be in favor. Here are some common options for rental restrictions:
*No rentals at all, except in cases of financial hardship to the resident and homeowner.
*Two- to five-year requirements for homeowners to live in the houses prior to using them as rentals.
*Limiting rentals to 10 percent of the houses in a neighborhood, or a similar percentage

Wednesday, October 30, 2013 - 7:09 am

A Greenwood house went from being owned by a family to a rental company in the past year to now being back on the market.

The Pines of Greenwood home was purchased by a rental company in October 2012 but since has been listed for sale again after the neighborhood homeowners association enforced a rule that owners have to live in houses two years before they can be rented.

American Homes 4 Rent, which bought the home and about 350 others in Johnson County in the past 18 months, didn't fight the homeowners association and is selling the home.

Of the approximately 22,000 homes the company has bought in the U.S., between 100 and 150 have had to be resold, chief operating officer Jack Corrigan said. American Homes 4 Rent doesn't take the time to research every homeowners association's rules before buying because it is cheaper and more efficient to purchase houses while the prices are low in an area or if they find a good deal at auction, he said. If the occasional house has to be sold instead of rented, the company doesn't lose, he said.

If a neighborhood doesn't allow or restricts rental properties, American Homes 4 Rent will avoid buying there in the future, he said.

“Because we've made money most of the time selling them, it hasn't been that problematic for us. It's a good business when you can make an error and make money at it,” he said.

Homeowners associations throughout central Indiana are adding similar rules banning or restricting rental homes because companies such as American Homes 4 Rent are buying hundreds of houses to rent, Indianapolis attorney Scott Tanner said.

People who own and live in their houses fear that renters don't have as much invested in a neighborhood and won't take care of properties, and home values will decline, he said.

This year, Tanner has worked with about 20 homeowners associations in central Indiana, three of them in Johnson County, to write new rules limiting people and companies from using houses as rental properties. Nearly half of the neighborhoods have approved the new rules, he said.

“I'm getting a lot of work out of it because people are trying to stop this before it gets way too out of hand,” he said.

The homeowners associations were all reacting with concern to companies such as American Homes 4 Rent, which are buying houses in large numbers, he said.

Neighborhoods are putting an emphasis on getting the new rules approved now because they're noticing the large numbers of houses being used as rentals in central Indiana, and the trend has caught their attention, he said.

For example, California-based American Homes 4 Rent bought 1,800 properties in central Indiana recently.

“It has gotten people's attention and gotten reactions,” Tanner said.

The topic has come up in the past in Greenwood. In 2006, city council members considered a rule requiring homeowners to live in a house for three years before being allowed to rent it, but the change wasn't approved. But neighborhood homeowners associations can approve their own rules, which can range from not restricting rentals at all to forbidding rental properties entirely.

Some homeowners associations see renters as better than an empty house. In Franklin's Heritage subdivision, about one-third of 460 houses are rental properties, according to homeowners association president Tim Hubbard.

Foreclosed and empty houses have been much more of a problem than renters, because the properties aren't as well-maintained, Hubbard and Wakefield West Homeowners Association president Eric Radecki said.

“As long as things are being maintained and taken care of, I don't see why the board needs to get involved,” Hubbard said.

The Wakefield West neighborhood has to pay for mowing and trash cleanup at foreclosed properties until a bank takes over and hires a company to do it, Radecki said. A renter or landlord can be pressured into maintaining a property.

But property upkeep during the six months or so of transition while a house is being foreclosed on falls to the homeowners association, he said.

Other homeowners associations choose not to deal with rentals at all. For example, the homeowners association for Timber Creek condominiums, located off County Line Road in Greenwood, doesn't allow any rentals.

In 2008, as home values plummeted, the condo owners noticed that four units in the neighborhood were being rented and got concerned that if some of the units were rented, that could decrease their home values even more, association president Dan Owens said.

So a majority of the owners of the 20 condos approved a no-rentals policy. The four rented condos were allowed to stay as they were. But when any of them sold, the buyers had to obey the new rule, he said.“We just felt that it was in our interest to maintain our property values to keep it homeowner-occupied,” he said.

Not allowing rentals is the simplest way for homeowners associations to stop homes from being rented, Shelli Anderson, attorney with Van Valer law firm in Greenwood, said. Anderson has worked with homeowners associations locally to add rental restrictions to their rules.

Other ways of limiting rentals, such as requiring homes to be owner-occupied for two or more years before they're rented or allowing a certain percentage of houses to be rented, are more difficult to monitor, she said.