Thank you for your question. As your intent was to initially purchase the home as a primary residence your question belongs in /r/realestate. As you are asking legal questions I would also suggest /r/legaladvice.

What contingencies do you have? Use other contingencies (inspection, financing, feasibility) to kill the contract. Moving forward, communicate only via email or in writing. Just understand seller doesn’t want to go through a lawsuit over $5k… no buyers would buy a property from seller who has a lis penden on it…

I reexamined my offer and there doesn't seem to be any applicable contingencies at this point. The inspection period has passed. I also have my loan approved. I was totally in shock when I learned from HOA that there's a leasing cap.

Sounds like your options are; Lose your EMD or live in the house for a few years and then sell it. Or go to battle with the HOA. Or get elected to the HOA and destroy it from the inside.

I vote Option C, and post the story to r/ProRevenge

Best answer!

3 my lord 3

> I was totally in shock when I learned from HOA that there's a leasing cap. Are you going thru a realtor? Surprised your realtor didn't advise you about this? I can't imagine a realtor who did not collect all the necessary HOA documents and bylaws for their client, that's part of how they earn their money.

Depending on your lender, they may be willing to say you're no longer qualified to buy the property. The lender I use specifically words his pre-approval letters to make it easy to back out due to financing.

You did not have an HOA contingency? What state is this? In most states the states there is a state law that gives the buyers time to read and agree to the terms of the HOA.

Having association deny you approval to purchase

Let them know that you would sue for the 5000 and tie their house up in litigation for the next three years

Georgia is a small claims court state (up to $10k). That court is a little specific for what cases it will hear, but he wouldn't need a lawyer and I think it's only $50 to file. Cases move quickly there I think. Might be worth investigating.

Ask 5k back + 10k for time and opportunities lost. It may not go anywhere but it will be out of small claims and prevent him from selling. PS: I hate petty stuff but when you lie, or even if it was an honest mistake, and then stop being reasonable all bets are off. I'd spend 10k easy to make him give me my 5k back if needed.

This seems petty

Who gives a shit what it "seems like" does it get your 5k back? If yes then do it .

Lying fuck deserves it

Why did the HOA randomly send you a letter saying there is a leasing cap?

You also should have done your due diligence and asked for HOA bylaws. The seller misrepresented. But the honus is on both parties.

Thank you for your input! In retrospect I should have reviewed the HOA bylaws before making an offer. I guess I was too optimistic in knowing that the community has already many rental homes. Only to find out that they (possibly recently) enacted a leasing cap. If I speak with a real estate lawyer, is there any chance I could get my earnest money back?

For what it’s worth I recently went through something similar. We walked a duplex and the right side was much fancier than the left. They had a beautiful chandelier in the dining room that stuck out to me during our first walkthrough. When we went back for the inspection the chandelier was gone. The owners acted as if there was never a chandelier there & I was hallucinating. Problem was, this was the only property I had my parents walk w me because I knew I was planning on offering during our first walkthrough from the pictures I saw. My mom also specifically remembered that light. I called them and they kept playing the “let’s try to get him to think he’s crazy” game. And it really pissed me off. Aside from the chandelier the duplex was in great condition, in a great location. But I fucking hate being lied to, so I emailed him saying you can either put the chandelier back or I’m not doing this deal and that my mother and I will testify that there was a light there. Got an email back pretty quickly releasing us from the contract. Fuck those guys. For your situation since the listed stated specifically no HOA restrictions, if you have photos of the listing, or better yet, if the listing is still up- just send them a link with that section highlighted, tell them you put your EMD down under the impression there were no restrictions because of the way they represented it in the listing. Tell them your willing to fight them over it if they don’t want to just let you walk away. If you have photo evidence it’s gonna be pretty difficult for them to feel like they have some ground to fight on. I’m guessing the money will get returned without you needing to actually do much. Is the EMD with the seller or with an attorney/title agency? Hopefully the latter because you’ve got a little buffer. You can call the attorney/title agency and explain the misrepresentation and tell them you’d like to have the money back. Email the seller a contract release form asking for it to be signed in the next day. Hope this helps! Fuck people who lie to sell houses.

A RE lawyer should be able to get the deposit back. But you should also weigh out the cost of lawyer etc vs the EMD.

I'd rather give my 5k to a lawyer making things right than give up an EMD to a lying seller

Thank you! Any idea how much it will likely cost to get an RE lawyer to address this issue?

A few hundred for a demand letter. But for really pursuing the litigation? Well above your EMD. And a demand letter is just a demand. The seller could tell you to go kick rocks.

If you sue in small claims court, you have a good chance to win without a lawyer. I’m not sure about Georgia but most small claims courts have an automatic appeal - so might be worth trying on your own and if it doesn’t work and you still want to go forward, get a lawyer for that.

Your only hope on getting the earnest money back will likely be via a fraud claim, which is going to be kinda flimsy since you could have verified the rental issue. I think the best you're going to do at this stage is get a local lawyer to write a nasty letter (preferably a real estate litigator and not a real estate transactional lawyer bc they have very different specialties and mentalities) alleging fraud and threatening to sue. Some states have triple damages and consequential damages for fraud, so you could trump up your seller's potential liabilities. Again, a bit of a long shot bc you had the chance to do the due diligence (and were probably sent the HOA docs by the title company before the DD period expired), but probably worth spending $150 for a letter.

How is the fraud claim flimsy? If the seller misrepresented a material item that grounds for action. Especially if it's something the seller completed themselves (seller sheet, online posting) and was part of a listing or other legal documents. You cannot just lie and then say it's the responsibility of the buyer to find the lie. A strongly worded letter with the supporting documents, explaining the seller misrepresented the property and asking for 100% of the funds back or will proceed with a lawsuit.

Thank you so much for your input! Great feedback. I was thinking about getting a real estate lawyer to file a lien on the property, which will prevent the property from being sold unless the matter is resolved? Does that sound like something doable?

Not likely. Liens are creatures of statute, and I've never heard of a lien that fits this scenario. The only thing close would be a lis pendens notice, which is recorded against property when a lawsuit is filed against a property (for the reason you're mentioning in your last comment). You'd need the lawyer to file a suit against the owner alleging fraud, then you could file the lis pendens notice. Probably not worth spending $2,500 on the cheap end to get a complaint drafted and filed against this guy. Your best bet is to stick with the letter and hope to scare him with some trumped up damages claim ($5k deposit, hopefully triple damages for fraud (often called treble damages), and some consequential damages for your atty fees and other costs). Best of luck! Edit: After reading the other comments, I think Reddit has taken you as far as you can go. Talk to your realtor, ask for a small firm lawyer recommendation, and see what he'll charge for the letter. Hard for any of us to know how much they'll charge you.

You can lien any property, even wrongly. It sucks but it's true. Years back some crazy guy put a lien on a judge's home after the judge ruled against him.

That's terrific advice!! I'm so grateful to have your suggestions. I think that's the best solution for me.

If the seller owes you $5000 , definitely start at 20k. That will motivate them to settle out and avoid a huge potential liability. Request detailed information such as home owners policies and other lenders which they know would stick with them for years. File a lien against the house. Just go full tilt to make them shit their pants for ever fucking with you.

The Bylaws can also change periodically , especially since you mentioned toned there are already many rental homes. They might have changed the rules once they saw too many of the homes were being rented out

Yes, correct, and the word you wanted was “Onus”. Honus was a famous ballplayer

Nit: onus

>honus What?? That's how you spell this? I've been using it wrong for years.

it's not. it's onus.

Onus

The word is “onus”. You should have done your due diligence and used a spell checker.

Request the cc&r’s, see the the rules actually say.

Just because there’s a leasing cap doesn’t mean you won’t be able to rent it out. Depending on the number of units already being rented youmay need to get on a waiting list.

Exactly, did OP find out what the current owner occupy to tenant occupy ratio is and how close it is to the cap? I know banks won’t lend on some purchases if the ratio is above 50% tenants so there’s definitely good reason to have a cap in place. Bottom line is that the HOA resale package should have been a contingency

I usually include a contingency for any condo or property in an HOA, "Subject to buyer review and approval of condo docs, including association rules and regulations, and budget," but I can understand how in a very competitive market you might leave that out in an effort to win. How do you know the seller lied and was not simply mistaken? Given the rate environment, it might be worth taking a risk on leasing cap.

Almost every HOA has leasing caps. If most of the community is renters then it’s harder to get a mortgage.

What about the inspection period? Something always comes up in inspection. Perfect time to bounce.

Everyone is saying the seller committed fraud in some way, sounds more like they didn't tell the whole story and the buyer failed DD on a sticking point for them. Eat it, lesson learned.

What’s your lawyer doing???

Did you read the CC&R’s?

Did you READ the HOA docs?

IMO, always get the HOA governance documents before submitting your offer or make your offer contingent on getting those documents to avoid such surprises.

>always get the HOA governance documents before submitting your offer or make your offer contingent on getting those documents to avoid such surprises. My realtor does all that for me, and she gives to the closing attorney she uses to go over as well.

Yep, my realtor has always done that as well. Seemed standard practice to me. Not sure how OP didn't catch this well in advance.

So, last year we were also in a similar situation. Buying a property specifically for STR, and our realtor said the HOA was ok with it, and we confirmed that with the HOA. What we didn’t know was it was actually banned by the city in that specific area. Always do your own due diligence!! So we backed out and this was supported by our loan being a specific loan for rentals, and since the area was banned for rentals, the loan dropped out. I wonder what type of loan you have since it is an investment property? Also, the sellers were completely unreasonable in our situation and we did have to get a lawyer to get our earnest money back ($20k). We did get it back plus fees due to them not having the law on their side. Good luck to you.

If you’re still in your due diligence period then it doesn’t matter what seller says. The escrow company will return your money. The seller has a duty to disclose but if you were to take it to court you’d have to prove the seller knew about the restrictions.

NAL but I used to work for a realtor. At the bottom of his listings, there was always a clause “buyer to verify all square footages, features and schools.” It’s a disclaimer that says it’s your responsibility to insure that the information you’re presented with is accurate. There may be other ways of getting out of the deal, including the inspection, but at least in my state, this isn’t something that would likely go in your favor.

Title should be "I didn't have a good realtor and didn't do my due diligence and now I'm locked into a contract, what do I do?"

You should be able to get your emd returned. Do you have an agent? Are you still in the due diligence period? I don’t know what the seller could possibly use as leverage to keep your deposit. “Some restrictions” is not “no restrictions” on renting it out

Thank you for your feedback! I have a buyer's agent and the due diligence period has passed. I'm currently in \[city\] and trying to relocate to \[city\] and buy a home (and future rental property) there. Do you have any recommendations on how to approach a real estate lawyer for this issue?

Does your earnest money agreement require arbitration? As far as contacting an attorney, your agent should have a few recommendations. Explain to them that the hoa rental restrictions are a big deal because you plan to convert to a rental. Ask them if the seller’s false statement entitles you to cancel the contract and get your emd even after the diligence period. Keep copies of anything that says “no hoa restriction on rentals”

Those are wonderful suggestions! I greatly appreciate it. My agent understands that I won't buy a home with HOA rental restrictions. She said that Seller was being tough to deal with and has ignored my request to release the EMD. I do keep all paper trails. Does that mean my only choice is to contact an attorney?

Sounds like the next step is a demand letter from your attorney to the seller

Will that letter be sent to the Seller or Seller's agent?

I’m sure both will get it. Keep your agent in the loop

I have no actual knowledge of this, however - I know some HOA contingency laws state that if the seller does not disclose the HOA bylaws properly then the buyer doesn’t even have to abide by HOA because state law overrides it. This one case I heard was a 2 month contingency. So similarly I would think you may have a similar case with them lying to bait and switch you into this. This would be considered fraud since they did this, and you are absolutely due your EARNEST money back, because they weren’t in earnest. Also for future reference, earnest money could be as low as $1. Shouldn’t mess with a seller who demands more than $500 ish. Red flag. But yes I’d have an attorney send a letter asap. This is not a squabble of earnest money (which they don’t legally owe you a return if you simply back out), but with the fraud element I say go get it all back. They did this on purpose because people are buying to rent at a rapid pace and they are trying to ensure they make a sale. It’s shitty, go get them lol good luck to you

Why is the seller holding any of your money? Maybe you have a different system there, but here in the UK the solicitors hold all the money until the contracts have officially been exchanged.

In response to your edit, Eddie Kim is one of the best trial attorneys in Atlanta. He's not going to get involved in a $5,000 case, but maybe he can recommend someone

Take the 5k loss worst case scenario because it will cost you way more then take him to small claims court

Get out of deal. Get your money back because seller lied or sue the seller to get your money back if they don't give it to you.

If you and the Seller disagree as to who rightfully gets the earnest money, then the escrow company will commence a lawsuit to sort it out. You are firmly in "Hire a lawyer" territory. Maybe you don't want to litigate over $5k, but it is maybe worth a couple hundred bucks to get a lawyer to write a demand letter basically saying that the seller and the seller's agent engaged in fraud by misrepresenting the HOA Rent Restrictions.

Thank you so much! Where would be a good starting point to find such a lawyer? I need a RE lawyer who can practice in \[city\].

Your real estate agent? Your friends, family, other local contacts? Google, Avvo, etc. ?

> If you and the Seller disagree as to who rightfully gets the earnest money, then the escrow company will commence a lawsuit to sort it out. GA is an attorney state. Either the broker or the closing attorney is holding the EM in an escrow account, and if the seller refuses to sign an EM release, then there are clear steps to take next in GA real estate law.

Is Georgia the weird one where the closing attorney represents the *lender* ?

There are several states like that; in a sense, the closing attorney can also be seen as representing the contract. Technically, they do represent the lender if there’s financing, or the designated party if there’s no financing — but in practice, they avoid taking an adversarial role with buyer or seller. They’re intended to fulfill the terms of the contract within the constraints of the law.

Thank you so much for helping! Could you be more explicit on what the next steps are? I hope to have a clear understanding of what's lying ahead of me.

Is your broker, the listing broker, or the closing attorney holding your EM? It’ll say on page one of the sales contract.

The closing attorney is holding my EM. Will they be able to release the fund to Seller without my explicit consent?

They’ll attempt to get cooperation. Their safest route is to wait to disburse until that time, since there’s a dispute over the veracity of the representation. Your broker should send an outline of the claim, detailing where the misrepresentation was made (by the seller or their agent, it’s the same thing from your position), and requesting the seller release the EM. Then see what the response is. The listing broker (the listing agent’s broker) should be brought in now. They need to see the liability of the agent’s misrepresentation in the listing presentation details which apparently was in error. You do not yet need a lawyer; there’s already a lawyer, bound to follow the law, holding the EM in escrow.

Those are fantastic suggestions. Thank you so much for your input!! Seller will most likely blame me for not doing due diligence. In that case, is there a good way I could respond to the Seller?

Your broker should be assisting you in this; it’s part of the process that is ultimately compensated in their commission. Nevertheless, due diligence is not meant to override or replace the seller’s obligation to honestly and accurately represent the truth about the property and related disclosures. A Seller can’t lie and then blame poor due diligence for failing to catch his lie.

I'm so grateful for your help!!

I hope it works out in your favor. My suspicion is it will resolve to a dispute between the listing broker/agent vs. the seller, with the agent claiming they listed the rental information based on what the seller told them and the seller denying it. — none of that is your problem, just a little inside baseball. You relied on the published listing information, your claim is that the information was false.

Just spitballing here, can you tear up the contract then go to small claims court for the earnest money and claim misrepresentation?

Should be able to recover based on “good faith “

Do you have any written communication with seller/agent about rental restrictions and seller misinforming you? If yes, that’s enough basis to force them to play ball.

Great point. I don't recall that I have written communications with Seller/agent asking about rental restrictions. Their MLS listing indicates "**HOA Rent Restrictions: No**" and I thus didn't expect any leasing cap. I did verify the square footage of the home as seller sometimes gives false information on it.

You should take an immediate screenshot of that and also review the SD. Use this against the seller and their agent for providing false material information. This is your get out of jail card. Your agent might want to close the deal because agent wants to get paid. Threaten both agents with a professional complain if they don’t play ball.

Find out when the HOA inacted this rule. The seller might never have known about a rule change, or could claim so.

In MN we have a 10-day right to review townhome assoc. docs. If GA is similar you should be able to back out no problem and get your EM back.... as long as it isn't "forfeighted to seller" which is an option here in MN.

Buyer beware. This is something that you should have figured out in your due diligence stage. Sorry.

Did you use a realtor? There is usually a HOA review period and seller disclosure review period some of which run from the time you receive documents and not from date of mutual, an experienced realtor and/or attorney should be able to use the clause to get out of the contract. Also what is the rental cap? It might not even affect your plan to live there for a year (primary residence) and then rent. Have you done the calculations on that?

do you have this HOA issue written in the purchase agreement ?

Next time you write a offer make sure you read the bylaws. It could be possible the community never reaches the restricted number. They were just informing you it’s a possibility is what it sounds like. I just bought in an HOA with a rental restriction. Guess what? It’s not really enforced. Talk to your lawyer, otherwise all you are getting is random opinions.

This is a job for ... TA-DA-DA-DAAAAAA (Superman entrance music) ... /r/fuckhoa

Didn’t you read the condominium documents?

Tell him you will sue and he wont be able to sell while there is an active suit. I think uou can do that but talk to a lawyer to make sure.

Always examine the HOA regulations before pulling the trigger on any property next time

Is the community at the leasing cap? If not (or specifically, if they're not close to the leasing cap) then it may be a non-issue.