There is a lot of confusion in the marketplace as to what the rules are as it relates to short term rentals for FHA approval. The bottom line is that if an association does in fact allow short-term rentals (minimum periods of less than thirty days), they are ineligible for FHA certification. These types of associations are referred to as “condotels”, and as such, are commercial enterprises and not considered residential in nature. HUD insures residential mortgages for owner occupants. It is very common for resort type areas (Florida, Hawaii) to allow short terms rentals because of the demand for vacation accommodations, and is one of the main reasons why there are so few FHA approved associations in these areas.
Where the waters get murky, is where the governing documents of the association are in conflict with the actual practice of the association. The developers of condominium associations included when they formed the associations, a myriad of differing language that caused HUD to issues the following waivers.
I. When the declaration (CC&R’s) states no minimum lease term, and neither the declaration or Rules and Regulations prohibit hotel leasing, then the board may prepare a letter on their letterhead, signed by the board president, attesting to the fact that there are no leases for a term of less than 30 days and that there is no hotel/transient leasing.
II. When the declaration (CC&R’s) states no minimum lease term and does not prohibit hotel leasing AND the Rules and Regulations DO state a minimum terms which is less than 30 days, the board must revise the rules and regulations so that the minimum lease term is 30 days or greater.
III. When the declaration (CC&R’s) states that any lease term of less than 30 days is permitted, the association must draft, approve, and record an amendment to the declaration (CC&R’s) which changes the lease term to 30 days or greater.
There is also a waiver in regards to lender or developer exceptions to leasing terms.
IV. When the declaration (CC&R’s) state that a lender or developer have any exception to the lease term, the board may prepare a letter on their letterhead, signed by the board president, attesting to the fact that there are no leases for a term of less than 30 days and that there is no hotel/transient leasing.
Associations must weigh the benefit of access to thirty percent of the current buyers by FHA certification, with the benefit to owners of the ability to rent their units for profit when the owners aren’t occupying them. As far as HUD certification is involved, no short term renting is allowed under any circumstances.