Political battle ignites between Tennessee homeowner associations, absentee corporate landlords

Tennessee Sen. Mike Bell, R-Riceville, addresses the Pachyderm Club of Hamilton County on Aug. 4, 2014, in Chattanooga.

NASHVILLE - The political battle between Tennessee homeowner associations and absentee corporate landlords over long-term rentals reignited this month in a state legislative panel.

At issue are efforts by some HOAs - nonprofit organizations in subdivisions and planned communities that set and enforce rules for properties and residents - to alter rules involving large corporations buying homes to rent.

Critics say out-of-state companies are swooping in, buying up homes en masse and leasing them, sometimes to renters who couldn't care less about requirements for upkeep and other rules. The corporate-owned homes are sometimes becoming nuisances, with some renters even engaging in criminal activity, representatives of HOAs say.

But those companies, which deny the allegations, counter that the HOAs are trying to change the rules in the middle of the game and are interfering with their property rights, attracting sympathy from a number of legislators, including Sen. Mike Bell, R-Riceville.

Bell's bill to provide existing property owners with protections bogged down in the Commerce Committee in the spring. Last week, the committee reconvened, hearing testimony from both sides on an amended version that Bell hopes can be worked out for next year.

It's an effort to protect "homeowners who purchase a house under one set of HOA rules from those rules being changed on them," Bell told committee members.

Bell said he got involved in the issue "because of the encroachment and infringement on property rights," noting HOAs have gone too far.

"When you think of an HOA, you think the type of shingle, what type of facade they have to have on the house, what color the front door has to be painted," he said. "But when they start telling people who bought a house under the current rules and regulations that say they can rent it and then rules change in the middle of the game that say they can't rent it, you're taking something of value from the person."

Bell said the amended bill seeks a compromise by "grandfathering," or applying provisions protecting absentee landlords' ability to continue renting only to existing homeowners. It would allow HOAs to impose restrictions or bans on new purchases going forward.

HOA officials remain opposed, but they are open to another provision of Bell's amended bill, which requires the private governing entities to make their proceedings and votes available to all HOA homeowners.

Dawn Bauman with the Community Associations Institute told Commerce Committee members that the HOA model was working fine until the rise of corporate rentals.

Bell disagreed, recalling how one HOA banned people from having guns and how there was national flap when another HOA barred flying the American flag.

Jennine Sawyer, who owns a home in a Murfreesboro, Tennessee, development with close to 300 homes and now serves as the volunteer head of its HOA, said the proliferation of corporate-owned homes in the neighborhood is causing major headaches because of the people to whom they rent.

In some cases, people renting from out-of-state companies are selling drugs and running prostitution operations, she and others said.

A standard homeowner is going to have more at stake, but that's not the case for a renter, she said.

Dealing with families that own a home and actually used to live in the development but now rent it out usually isn't that much of a problem, Sawyer said. But getting the out-of-state companies to respond to problems is often difficult, she noted.

"We need to keep our HOA with the ability to protect our home owner values," she said, charging the bill is "essentially giving the out-of-state landlords that protection."

HOAs, among other things, are looking at bans of home sales to corporations and barring them from renting once current leases are up.

But in addition to flak from some state lawmakers, the HOAs are running into problems in changing their rules. Many HOAs are set up with requirements mandating rule changes must be approved by a majority of homeowners, sometimes 75%. A vote is tied to ownership of an individual home. Because some companies now own more than 25% and even more than 50% of homes in developments, winning approval for changes is hard, HOA members and advocates said.

Luke Ashley, a lobbyist representing the out-of-state owners, said "our position is that the right to rent your home is a personal property right. And it's different than the [HOA] restrictions on appearance and structural integrity that protect the values of all home owners."

As a property right, Ashley said, "you have a right to that revenue stream and rentals."

After the hearing, Bell said he hopes to get both sides together to see if they can work out their differences.

Asked why he and some other lawmakers are stepping into the dispute, Bell said state government has let HOAs "operate without any oversight and much less oversight than we give cities or much less freedom than we give cities. And I think there's a bigger question here, and it's how much oversight HOAs might need to have."

"We had one crazy one 10 years ago that tried to ban guns, right here in Nashville," said Bell, a staunch 2nd Amendment advocate. "It was their right to do so under state law. But they're acting as state-agent actors."

Sen. Bo Watson, R-Hixson, a Commerce Committee member, spent his time during the two-hour meeting listening.

Noting he hasn't taken a position yet, Watson described the situation as "one of those kind of property right vs. democratic rights, when you have a group of individuals who want to impose a contractual will on another group that has certain rights. It's more of a classic battle of rights."

But ultimately, he said of the HOAs, "they're governed by state law."

Rob Koltiska with Progress Residential, a company owning homes in some HOA developments, said during the hearing that his company and most others he knows of are doing things right in their rentals, taking care in whom they rent to and keeping up properties.

Companies are interested in protecting home values as much as individual homeowners, he said.

While acknowledging there may be problems with some corporate owners, the "nonprofessional companies will weed themselves out," Koltiska said.

Contact Andy Sher at [email protected] or 615-255-0550. Follow on Twitter @AndySher1.