For rent-to own mobiles: Keep title in park's name or buyers' names?

Question

Question for the BP Mobile home experts:

If a park has a fair number of mobile's with Rent-To-Own / Contract-for-Title on them, should the park keep the titles in the park's name or should the titles put them in the buyers' names with a lien?

I am conflicted on what is best as I see good and bad to doing either.

In park name - easier to manage administrative work, ensure taxes are paid, easier to recover if owner walks away or quits paying park rent

In buyer name - they pay taxes, if home is damaged would seem to limit park's responsibility, no insurance cost

If value of the homes is an issue, the mobiles in question are of low value $2-10K ea.

Again, looking for the industry best practices on this.

Thanks!

Ken Rishel · Answer

Federal law require the title be in the name of the borrower with the lender's lien on the title. This is not open to question. Often state law requires the same. Remember you are financing a residence which invokes different laws than other chattel property lending. Also remember there are many new and revised laws since the passage of the Dodd-Frank Act.

Even as I write this, one of our auditors is going through a pile of Contract for Deed loans that a community owner wants to sell. Given the updates I'm hearing over the phone and by email, the community owner is not going to take a haircut - he is going to be justifiably scalped. He relied on the advice of his local attorney who was practicing law far beyond his level of knowledge and expertise and the community owner is going to pay for it.

What sounds easy and cheap, often becomes very hard and very expensive.

Curt Smith · Answer

Thanks Ken for stepping in.

What frustrates me is how many times the same Dodd Frank / seller financing message has to be posted to BP forums.  Seems folks don;t search or read?i

Nicolas, Lonnie deals are dead.  The book(s) are worse than j.ust out of touch with current regs, they are dangerous to the financial health of the newbie who assumes the books are current viable business models.

Proceed at your own risk.  Lots of small fries are still selling MHs in parks.  Just a matter of which state and if that state's banking division feels like dragnetting public records for lenders.   FWIW the biggest risk in seller financing to occupants (your scenario) is the borrower getting mad at you and calling state regulators.  #1 create a fair deal for the borrower, treat them well, make sure they can afford the payments (one of Dodd Frank's purposes, ATR) and check up on the borrower being a good guy.   Hopefully your deal in flight if you have one turns out ok.  Take this info for next time,,, that there may not be a next time.  Just rent, or sell for one lump sum for cash (no financing).

Bill Gulley · Answer

@Ken Rishel

Your last post needs to be copied and pasted as a blog so it can be easily located, in the Notes forums for all note investors, in the Creative Financing and Conventional Financing threads as well! That is a 100 vote post!

IMO, here's what will happen.

When State AGs and regulators begin prosecuting, and they are and will, small lenders and note dealers/investors will be devastated trying to defend themselves. You will not likely be able to even find a capable attorney that has experience in financial administrative law, the secondary legislation Ken explained.

The HUD and the CFPB both have "Hot Lines" to report fraud and violations, there are also whistle blower avenues. There can also be rewards.

A much easier side for attorneys to take will be on the civil side suing violators. When they begin to pick up on the financial restitution and fines available to them and understanding how lucrative financial laws can be, they may well stop chasing an ambulance and start  driving for dollars looking for Rent-To-Own signs!

IMO, nailing small lenders will be more profitable than workmen's comp claims or social security disability claims, which have limitations.

The CFPB also as an education department, once that is in place they will begin public information activities. You know how HUD is, required disclosures, tenant's right's booklets and directives to Realtors, closing agents, appraisers and others in the industry.

As Ken mentioned, regulators are busy frying big fish, doesn't mean they won't walk into court after violators have been identified, or contact the courts.....that is, if the judge's secretary doesn't call the regulator first, or an involved attorney!

Financing agreements can not be kept "underground", one idiot on BP suggested not filing a contract.....it's not enforceable and you'll likely play hell trying to evict.

How do they surface? When the borrower attempts to refinance, if they take bankruptcy, if the die or become incapacitated or they apply for government assistance, if they go to an attorney on other financial matters, if the get into any estate planning matter or if they get sued. Did I mention a borrower being more aware or educated later on?

Besides the fines and legal expenses, you'll have the matter of your money being lost in that contract, loss of collateral is another issue.

If you have a banner saying "Rent-To-Own" at your MH park, I'd suggest you take it down if you're doing this stuff yourself! :)

Ken Rishel · Answer

OK - I watched a few minutes of the you tube presentation. (I'm busy as well) One of the presenters was an attorney, so, I have to start with this:

I am not an attorney, nor is Rishel Consulting Group a law firm, nor do we offer legal services. Our consultancy relies on our experience for our expertise plus legal advice to us from law firms we retain or hire. We do not offer that legal advice we payed for as legal advice to our clients, but rather utilize it to guide our suggestions and solutions.

We further have direct contact with various staff and management of the principal federal regulators and attend private meetings where regulators discuss their goals and strategy, and I am a charter member of a national Dodd-Frank Task Force created by the manufactured housing industry that has held many meetings with the CFPB, and have helped to negotiate solutions like the new appraisal rule. Further Rishel Consulting Group hired as a consultant for our clients and customers, a former high ranking HUD official  who was transferred to the CFPB when HUD was required to transfer certain responsibilities to the CFPB. He was a principal in the creation of the SAFE Act while at HUD, and in many manufactured home related issues at the CFPB until his retirement.

Regulatory law is both complex and complicated when compared to other forms of law because in order to understand how it will play out, you first have to understand what the original intent of the law was when passed, rather than just what exists in writing. There is also the issue of primary legislation and secondary legislation.

Primary legislation refers to the Law, Act or Ordinance passed by the legislative of a particular jurisdiction. Secondary legislation refers to the power of lawmakers to delegate or subordinate law making powers to other agencies that may then make delegated or subordinate legislation often referred to as “secondary” legislation. In the context of financial services, secondary legislation is generally legislation that has been drafted by a regulatory body empowered to do so pursuant to the primary law by which it is established.

It is also important to recognize the importance of several other important factors: Regulatory Codes, Rules, and Regulatory Guidance Notes when determining a course of action. Regulatory Codes generally set out the broad principles by which a regulated business is expected to conduct its business. Rules are generally very detailed and relate to every regulated activity and function. Regulatory Guidance Notes can either be in the form of a statement of best practice or a statement of minimum best practice.

Occasionally a regulatory authority will feel compelled to issue detailed guidance to regulated businesses on how it expects them to actually discharge their legal and regulatory obligations. Anti money laundering and terrorist financing is one area where most regulators around the country have issued guidance. These are not easily found, but they also impact on a knowledgeable court's or regulator's decisions.

In addition, there is often several sets of laws and regulations that impact a given choice. Currently, there are five different sets of laws that attempt to define under what circumstances an individual is required to be licensed as an MLO. If one looked only at the principal law from which to form a legal opinion, the person or entity operating under that opinion could face action, fines, and penalties under other sets of law. Our suggestions to our clients and customers regarding regulatory law is to adapt the attitude that being guided by the most draconian of the sets is the safest course of action.

It is also important to recognize, that the CFPB has created a brand new battle field. They view lenders of all sizes as vile and evil. ( I have personally been to private meeting where they have said so.) Through a series of private national meetings with other regulators, they are, with some success, convincing both other federal regulators and state Attorney Generals to work with them. They are using everything at their disposal to achieve their goals. Witness what they are doing to vehicle dealers which the Dodd-Frank Act specifically prohibited them from getting involved in. They do the investigatory work, and then provide either the state A.G.s or DOJ with the information necessary to prosecute. They are using and encouraging state A.G.s to utilize UDAP as a broad method to prosecute lenders not in violation of anything concrete. They have even discussed using the RICO statutes to go after unlicensed lenders who are operating under the cover of legal ambiguities. These are not people any sane person would want to end up fighting with.

So, to the point of your question:

First, ask yourself this question. "Why would a regulatory agency who believes all lenders to be evil, want to create a way to allow a lender to operate, even on a small scale, unregulated? The answer is, of course, they would not. They want to regulate everyone who lends.

Second, ask yourself this question. If the law does clearly allow me to operate a small lending operation without a licensed MLO and a licensed lending operation, does that also mean that I am not subject to any of the other rules that apply to licensed lenders?

• Does that mean I can discriminate against protected classes in my lending?
• Does that mean I can charge any interest rate I care to?
• Does that make me exempt from giving all the proper notices before, during, and after a loan is made? 
• Does that make me exempt from safeguarding NPI?
• Does that make me exempt from setting up an AML system and registering with FinCEN and doing SARs reports?
• Does that make me exempt from screening customers against the OFAC lists before doing business with them?
• Does that mean I don't have to do HMDA reporting or BISC calculations and reports?

Does anyone seriously believe that state and federal regulators want to allow even a small lender to violate or ignore the 20+ federal laws that apply to lending, plus all of the various state laws? Unlicensed and unregulated, this can and will happen, and the regulators know it because it has happened regularly in the past, and is still happening now. There is, at our best estimate, about 20 billion in seller finance paper in manufactured housing alone. To the best of our knowledge, only about 18% of that paper is originated and service in a legal and compliant manner. Of the captive finance operations that are licensed, 95% of them are working hard to be legal and compliant.

From the regulators point of view, this flying under the radar is unacceptable. They are however tasked with a gargantuan problem of trying to catch everyone. The fact is, they are not catching everyone, and may never catch everyone who is violating the law. The same problem exists for drug use, or even speeding. On the other hand, if someone is caught, the consequences are often sever. FinCEN and OFAC violations carry long prison sentences, along with serious fines.

Back to the question of de minimis in lending. When the SAFE Act was passed, there was considerable discussion by regulators on this issue while dealing with secondary legislation. HUD had the responsibility for the Final Rule until the Dodd-Frank Act transferred responsibility to the CFPB. HUD had done 90% of the work necessary to get a final rule out so in a complicated legal agreement, the CFPB allowed HUD to issue the Final Rule with the proviso that the CFPB had the authority and right to change that Final Rule when they were ready to do so.

In all of the discussions, I was privy to, or our consultant was privy to as a employee of first HUD, and later the CFPB, it was made clear this exemption was only intended to apply to either inherited property or seller occupied residences. In the video you cited, contractors were not allowed to utilize this exemption. In manufactured housing parlance, a contractor would also be anyone setting up, or causing to set up, a HUD Code home. In practice, the CFPB has stated this means, "any retailer of manufactured homes" without reference to size or volume. Also be aware that each state has a different definition of who must have a retailer's license. In a number of states those numbers are far lower than the de minimis cited in the you tube video, which brings up the fact that not everything required of real estate lending applies to the chattel lending common to manufactured homes, and visa versa. We only discuss issues related to the chattel lending that utilizes manufactured homes as title collateral which is a very different world.

To end this very long post, there are, as the you tube video pointed out, very real differences of opinion on these laws. For all of the reasons cited in this post, and many more, we always advise our clients and customers to take a belt and suspenders approach to these issues. Class action lawsuits, and regulatory action are usually catastrophic to those of smaller size.

Bill Gulley · Answer

@Nicolas Franckenfeld

Hi, neighbor, you got 37 posts in before I saw you're in the Queen City.

I don't make up the rules, just report them. Might look at it this way, market rent $400 a month, but you can buy it, rent to own  at $600 a month, with 250 going toward the purchase. In 20 years, that 250 credit equals 30,675. at 10%  interest. 3500 rental income puts a market value at about 30,000, that's 60,000+ as an earning asset that was marketed as a rental, say 35,000 but was probably bought for 15K. Along those lines it's predatory by the nature of the deal, the MV is overstated and financed.

And, you're right, there are predatory landlords as well, slumlords, lucky Springfield doesn't have too many of those and a strong building regs and fire department.

I've said before, they took the easy way out hammering seller financing under Dodd-Frank as overkill is always easier than devising special programs to fit the needs of niche borrowers. But I've seen some roaches it takes a hammer to kill them, the right size in the right situation, there shouldn't be much collateral damage.....but we only get to use one size hammer, a sledge,  that's a problem. :)

Howard Abell · Answer

The consequences of the Dodd-Frank law is like trying to kill a roach with a hammer. The collateral damage is not worth it.

Nicolas Franckenfeld · Answer

I'm not sure how one can just dismiss the above as being "predatory".  e.g. If a solid percentage of buyers end of buying their homes or if the monthly purchase price is less than what a reasonable rent would be or if that is the fair market value for the home, etc, etc.

Market forces and a wealth of readily available resources (the internet) has made true predatory lending a small segment of the housing industry in recent year.  The old laws on the books, if enforced, were sufficient IMO.

I guess the gov't wants all of the hundreds of thousands of people living in "Lonnie deal" homes to instead just rent their homes and deal with the cut-off water, the no air-conditioning repair, the roach and vermin infestation, the leaking toilet, the broken dishwasher that their landlord refuses to repair while the local courts get an influx of eviction cases.

Bill Gulley · Answer

Bryan, nope, not really if you're a dealer, in the business, states may provide specific exemptions, however, all state laws concerning the Acts mentioned fall to HUD and the CFPB as to the intent to comply with federal law. Ken will probably know what states have been blessed with what exemptions.

There is more to lending than Dodd-Frank too, there are also predatory practices and all installment contracts begin with the Uniform Commercial Code regardless of the state.

Originally, the basic ingredients to Lonnie Deals were, buy dirt cheap, use lipstick, double the price, rent to own it or carry the deal, when they couldn't complete the deal, take it back, rinse and repeat. Pretty much predatory dealing to begin with.

Hope it's cleaned up now.

The issue with older cheap MHs is that they are difficult to finance conventionally, hopefully the new deals are fully amortized, especially at low dollar sale amounts. If they can't be refinanced, you may have a problem.

Jackie has posted several time on BP, and yes, I was busting chops in the past over Lonnie Deals, I understand Jackie bought the book rights, so I can understand why she sought out Ken to clean things up. (or vise versa) :)

Leslie A. · Answer

just be compliant from now on

Bryan N. · Answer

Right,but then I watch a very detailed video like this and it seems legal. I don't have to do search all day ,so why was wondering.

https://youtu.be/oP0BQP1s-zM

For rent-to own mobiles: Keep title in park's name or buyers' names?

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