Clarification on Condo-Tels

I received a great deal of email from owners and real estate agents alike regarding owners in condo projects violating their project’s by-laws and declarations by offering their units for short-term rental which in Maui is any duration less than 6 months (the County definition of Transient Accommodations which by the way is taxed at a higher rate).  To clarify things, I thought I would give some specifics on what designates a condo as a condo-tel. What follows is directly from the Fannie Mae Seller’s Guide for 2010:

Fannie Mae frequently receives questions on how to identify a condo-hotel???  The lender must perform a careful analysis of the project to determine the project's eligibility.  Lenders have several sources of information on which to rely.  These include, but are not limited to, the appraisal, the contract for sale, and the Internet

Such project characteristics include, but are not limited to:

• central telephone system,
• room service,
• units that do not contain full-sized kitchen appliances,
• daily cleaning service,
• advertising of rental rates,
• registration service,
• restrictions on interior decorating,
• franchise agreements
• central key systems,
• location of the project in a resort area,
• owner-occupancy density — the project may have few or even no owner occupants,
• projects converted from a hotel or motel, or
• interior doors that adjoin other units.

You might think that your condo does not have any of these characteristics. Well in essence it does meet two of them: Advertising of rates and located in a resort area.  Although the original definition was that the “project” did the advertising, Fannie Mae is now taking a harder stance and saying that ANY advertising for rental periods shorter than 30 days  will classify the project as a condo-tel.  Call me to find out if your condo is classified as "condo-tel"

If your project does not allow for Transient Accommodations, and there are owners that are violating the project’s rules, it would be in your best interest to contact the project’s Board or Management Company to get it stopped. Lending is only getting more restrictive. Don’t let a few rouge owners screw up your chances for obtaining the best rates available.

The original definition of "condotel" was that if there was a front-desk where you can step in and ask for renting a room for the night and the answer was "yes"... your condo was a condotel.

In the meantime, we have also discovered that on Maui, if your unit is in an "hotel zoning", it automatically becomes a condotel or if the association has a REQUIREMENT that the owner MUST participate in a rental pool operation, this would trigger "condotel" status but fortunately very few condos on Maui have this stipulation in their by-laws.

In fact, the only difference resides in the loan point of view because the lender considers it is a high risk loan as the owner relies on tourists to rent it.  Another trigger is that if any entity owns more than 10%, if this entity puts all its units for sale at the same time on the market... the value might decrease and in general... CONDOTELS = PORTFOLIO LOANS = they are not sold on the secondary market.  I don't want to make this more complicate and will thus explain you this when we'll meet if you don't mind :-) 

With Alohaaaaaaaaaaaaaaa!

Fabienne  808.280.8167