During the past few years of EZ financing, it became a widespread belief that there really weren't any rules or restrictions that stood in the way of obtaining a mortgage loan. That has changed. A lot of the old rules -- like requiring that the borrower actually has income -- are back in play. One of the old rules has to do with the percentage of units in a condominium development that are non-owner occupied.

There is no hard and fast rule about this that applies to all lenders. Generally, if more than 50 percent of the units in a development are not owner occupied, a lender won't make the loan. Some are more conservative and want up to 70 percent to be owner-occupied.

Whatever the particulars, underwriting guidelines of this sort can be both puzzling and frustrating. While the rules may have had some valid statistical origins somewhere at sometime, their application can seem highly inappropriate in certain circumstances -- for example, in a high-end resort development where most of the units are owned as vacation homes by very well-heeled individuals.

Also, applications of these rules can be marred by questionable data reporting, such as when a management company may determine owner-occupancy simply by the address where the bills are sent. So, if you have your bills sent to the office, even if you live in the unit, it may be classified as "non-owner occupied."

One frustrating and unintended consequence of owner-occupancy guidelines is that they may create a "Catch 22" effect. Suppose your development has 53 percent non-owner occupancy. All owners would be happy if there were more owner occupants. (Investor owners would be happy too, because the salability of units in the development would be increased.) Now, along comes an FHA buyer who wants to live in the development, but they can't get a loan due to the underwriting guidelines. The beat goes on.

Some Homeowner Associations (HOAs) have tried to address these issues by amending the CC&Rs (governing rules of the development) to restrict the number of rental units that may be owned by any one entity. This is in response to the not-uncommon phenomenon where a single individual or entity such as a partnership determines a particular development to be highly desirable for rentals and therefore, over time, acquires a number of units for that purpose.

For the reasons discussed above, one can understand why an HOA might have a problem with many of the units becoming rentals. Ironically, a well-kept, well-managed development can be a very desirable place to rent, but, because of the restrictions on financing, the success of rental landlords may then negatively affect the salability of units in the development.

As is so often common, there are legitimate interests to be balanced. An HOA's restrictions on an individual owner's ability to own rental units are also a restriction on that individual's rights. It is one thing when, at the time of purchase, an owner signs on to the rules in a common interest development; it's something else when rules are subsequently adopted that will impact that owner's intended use.

The California Association of Realtors® has sponsored state legislation (AB 2259, Mullin) that would "prohibit a common interest development from impairing rights related to the renting or leasing of a separate interest which an owner acquired at the time ownership commenced, unless the owner consented … ." In short, regarding an owner's right to rent, you can't change the rules, as they apply to that owner, from what they were when he purchased the unit.

The bill will be heard in committees this spring (2008). Lively debate can be anticipated. There are arguments on both sides.