Rent credits to avoid SAFE issues?

Question

i am hearing that many park owners are eliminating seller financing of homes. However, they are offering rent credits that the buyer can eventually use to buy their home or any other availabke home in the park. The idea is that it is not financing since the credits can be tied to any house rather than being tied to one house. Thoughts on this arrangement?

Ken Rishel · Answer

There are states that have specifically labeled " rent credits" as credit transactions, because they are. As people avail themselves of this on a wider basis as a way to try and avoid government regulation, we can expect both state and federal governments to react by doing what they need to to regulate them as credit transactions. The real horrors will come from civil actions in the local and bankruptcy courts. Be prepared to give all the money back including lot rent and to give the borrower the home as well.

Bill Gulley · Answer

I see no difference at all, if it applies to one home or several in a pool of homes owned by that seller. I'd really like to see that agreement! I might agree to that, as the agreement goes on, I establish an interest on the entire inventory held at the time of the agreement as I can select any home. I might sell my interest back to you for each property you want to sell! You're setting up a chain of contingent liabilities with all your agreements on your entire inventory. That's why people with ideas that try harder to circumvent laws than just follow them are dangerous. :)

Bill Gulley · Answer

Okay, first, you can't do a NNN lease on a residence or mobile home in Missouri or anywhere else, taxes, insurance and maintenance are owner's responsibilities. These expenses need to be covered in the rental amount. The SAFE Act basically states that any financing method or system devised that may provide any rent credit toward the purchase of a residence or that facilitates the sale of any covered property will be covered under the law. The law is written giving a very broad interpretation, saying any method or system, to be used to facilitate any sale. That pretty well means that it is impossible for mankind to devise any method, system, program, arrangement or agreement of any kind that allows credits or reduces the fair market value that may lead to any purchase of residential property by an owner occupied buyer. Paying some amount and getting poker chips or monopoly money to use toward a purchase is nothing but a shell game, it's clearly a method to allow credits from rents paid to buy a property. My advice is stop wasting your time trying to out smart the legal requirements, it can't be done if the law applies to a transaction. The way to avoid the law is through the exceptions provided under the law or doing a transaction that is not covered, like commercial financing. Otherwise, follow the requirements and use a licensed mortgage originator. Your "contingent liability" is in making a promise to sell any property in the future. I see you stressed "available" that's why I said I'd like to see that agreement. How do you define available? To me, that means any home you own, regardless of weather or not they are occupied. You're basically giving an option on your entire inventory in that park. Saying you will do something in the future, like agreeing to sell a home, is a contingent liability to you, you have the liability to perform at an unknown time that may or may not come to pass making your liability contingent on performance of your buyer actually buying. @Ken Rishel is our expert in compliance for mobile home dealers IMO as these are chattel transactions. He works with MH dealers. There is an attorney that feels he has a corporate structure that is involved in with other entities to facilitate seller financing, I'm not sure it will really fly as setting up convoluted business structures that do not carry on another business purpose other than to do seller financed transactions as the law, again, includes any method devised to circumvent the intent of the law. As to doing a transaction that is not covered, you may be able to pass a long term interest to a property through a Series LLC (Mo doesn't have this) or something like a HOA where people buy into an organization rather than taking specific title. The financing arrangement must lead to an interest in title to be covered, if you don't do that, it would not be a financing agreement. Sell the sizzle not the steak. :)

Ed Rataj · Answer

Bill, Thanks for your comments. I can tell from reading some of your previous posts that you are far more knowlegeable on these issues than I am. As I read your response, I am not sure that I follow what you are saying. Maybe I was unclear in my initial post. The tenent (rent credit purchaser) would have a NNN lease and pay both lot rent and house rent. The system would be set up so that for every $1,000 you pay in house rent, you earn one credit. Maybe the house that they are renting can be purchased for 10 rent credits and another (nicer) home may cost 15 credits. A tenent could apply their credits to the home in which they live or any other AVAILABLE house. I don't see the chain of contingent liabilities on the entire inventory (unless you define inventory as unoccupied houses that are ready to be occupied). Help me understand your point of view...and others please chime in. It is my understanding that this is currently an exceptionally common arrangement. Thanks.