MH Note Agreement With Interest

[Lori Wyoming]

I have sold 2 homes on payment. Someone recently asked me was I charging interest. I have not been charging interest. Can anyone share their mobile home note agreement or the info on what I should include?

I don't know where to start.  How is the interest calculated...daily, weekly, monthly?  Please help.  Thanks.  

[Daniel Smithson]

Hi Lori! Congrats on the sales!

Assuming you are not a licensed mortgage originator, please be careful about the documents you're drafting as sales agreements. You do not want to violate the Dodd-Frank or SAFE Acts that require this designation. These were put in place after 2008 and certainly complicated the landscape for selling homes, arguably making it worse for the end buyer but that's a whole different conversation.

Most park owners who are still carrying notes on homes they've sold are doing so with either a rent-credit program or a lease w/option program. Both offer a path to ownership for the buyer with monthly installments but the installments are considered rent. The buyer takes on no equity in the home until the purchase is completed.

We started with the rent credit system but found it cumbersome to manage. I like that it encouraged on time payments to receive credit, but it turned into a tracking nightmare quickly. I imagine there is software that would make this easier, but it wasn't in our current accounting program. We've since switched over to lease options with a depreciation schedule so that the buyer is still getting closer to home ownership.

The other option park owners use is selling homes through an LMO such as a local bank or 21st Mortgage. These entities will carry a note for your buyer (assuming okay credit, etc) and cash you out in the sale, moving the credit risk to themselves (or mostly so with 21st, you still have some obligations if the buyer defaults).

If you decide to carry notes, either system, I suggest getting your agreement reviewed by a local attorney or state MHA. That could save you big bucks later and makes sure you're protected.

Best of luck!