Probate Property Sales | Beware of Buying Condominiums

As a Certified Probate Real Estate Specialist with many years of experience with probate property sales, we have listed many condominiums for sale in Santa Clara County. Many are probate property sales. When selling a condominium, we are also selling the Covenants, Conditions & Restrictions (“CC&Rs”) that govern the community. The CC&Rs dictate what owners and residents can and cannot do in the community. 

All sellers of condominiums must provide what is often referred to as a “sales package” together with the seller disclosures.  Probate real estate is not exempt from the California HOA disclosure obligations.

There are some aspects of selling a condo that sellers do not have any control over. A few examples are:

• Physical location (corner lot, busy street, backs to a major freeway)
• Upstairs unit (some buyers do not want stairs)
• The orientation of the property (faces North, South, East, and West)
• Pet Restrictions
• Rental Restrictions
• Death in the property

We recently encountered a challenge in selling a probate property in a condominium community with highly restrictive rental restrictions. As an active full-time REALTOR® since January 2003, this probate property sale became one for the record books!   

We share this case to illustrate unforeseeable issues that may impact a sale. Keep in mind, in most cases, the Executor selling a house in an estate is not aware of the restrictions because they do not live there. 

Probate Property Sales | Rental Restrictions with Condominiums

The Covenants, Conditions & Restrictions (“CR&Rs”) in the community were amended to control the number of owners who rented their condos.  The amended rules were the most restrictive we have ever read.  The Amended CC&Rs focused exclusively on rental restrictions.

The following is a summary of the First Amendment to the CC&Rs.

Rental Restrictions | Right to Rent or Lease

• No more than twenty-five percent (25%) of the units may be leased or rented. This is referred to as a non-owner occupancy rate. The Owner is defined as a person or entity whose name appears on the most recent document of title on file with the Office of the Recorder.

Note:  It is not uncommon for a Homeowners Association to limit the number of units leased or rented to no more than twenty-five percent (25%). 

• Owners that purchased a condo and acquired title after the Amendment was recorded must live in, or occupy the unit for no less than one year before they seek the right to rent or lease the condo.
• If the new owner purchased a condo that had been leased or rented, the Owner must forego the lease or rental.
• Owners may not rent for hotel or transient purposes (think Airbnb)
• The Lease or Rental term may not be less than one (1) year.
• Following the recording of the Amendment, upon request from the Board, Owners must provide a copy of the signed lease, names of the tenants, and the members of the tenant’s household.
• Owners that want to lease or rent their condo must apply in writing to the Board of Directors.
• Within 60 days of receipt of the application, the Board reviews the application and notifies the Owner in writing if the request is approved or disapproved.
• The Board maintains a priority list of Owners who want to rent their condos.
• In its sole discretion, the Board has the right, but not the duty, to waive some or all of the provisions in “cases of deserving and unusual hardship.” [Emphasis Added]
• The Amendment is not applied retroactively. Owners who rented their condo prior to the recording of the Amendment are allowed to continue to rent without regard to the 25% non-owner-occupied restriction. If the Owner sells the condo the new owner is subject to the restrictions.
• Owners who violate the provisions are required to pay a penalty of five times (5X) the monthly assessment for the first three (3) months and ten times (10X) the monthly assessment for each month thereafter until the violation is corrected.  

Rental Restrictions Negatively Impacting Probate Property Sales 

• The physical location of the condo was good.  A desirable end unit tucked deep within the community away from busy streets and traffic noise.
• An upstairs unit is desirable for some buyers and not for others.
• The orientation of the condo did not present issues for most prospective buyers.
• Priced to sell given the condition. 
• Pet restrictions were not an issue.
• Most people did not have an issue with a death on the property.
• Rental restrictions were an issue for most prospective buyers. 

The condo would have been sold numerous times if not for the rental restrictions.  The rentals within the community had already exceeded 25%. It is clear that is why the Board of Directors made the decision to amend the Covenants, Conditions & Restrictions to restrict the number of rentals in the community. 

The ideal buyer for this condominium was an investor with plans to rent it.  

Probate Property Sales | Condominiums Board of Directors

As noted above in the summary of the First Amendment to the CC&Rs “In its sole discretion, the Board has the right, but not the duty, to waive some or all of the provisions in “cases of deserving and unusual hardship.” [Emphasis Added]

Given that the condo could not be sold to any of the potential investor buyers, we suggested the administrator of the estate petition the board for an exception to allow the condo to be sold to an investor who intended to rent it.

Exception Requested to the Board of Directors 

Typically matters such as these are heard at a board meeting.  This particular community association only holds meetings every two months.  The next board meeting was over 6 weeks out.  Therefore, a letter was sent to the manager of the condo community requesting the letter be forwarded to the board members.  The letter provided the board with a summary of the showing activity and the number of offers from investors with plans to rent.

We requested the boards’ approval on an exception to the rule that an owner lives in the condo for one year before it is eligible to be rented indicating extraordinary circumstances given the owner is deceased and the condo must be sold to pay debts of the estate.

We further explained the restrictions pose an extreme hardship on the estate. With the Boards’ help providing an exception we can get the condo sold, and the family can close the estate.

It took less than 24 hours for the Board to deny the request. We presented a “case of deserving and unusual hardship” yet the request was denied.  The estate had no money to pay the monthly HOA fees which continued to accumulate with late fees and interest. 

The condo did eventually sell. If the buyer could have been someone with the intention of renting it, it would have sold sooner and for a higher price. Our clients know we went over and above to get the condo sold and remain more than pleased with how we represented the estate in the sale of the condo.

When we buy condominiums, we are buying more than the unit we intend to live in. We are also buying into a multi-million-dollar corporation with governing documents, among them are Covenants, Conditions & Restrictions that may ultimately negatively impact probate property sales.