All Forum Posts by: Ken Rishel

Are you looking to borrow to buy or rehab the park - or are you looking for consumer lending that tenants can utilize to purchase homes?

You might also strongly consider reaching out to George Allen author of a number of books on the subject (his company is EducateMHC)  and guy Sam Zell (largest MHC owner in the US)credits with getting him into the manufactured housing business. While I do not agree with everything that Frank and Dave teach in their bootcamps, the investment of time and money can be well worth it as long as you go in understanding that no one school of thought has all the answers. Joanne Stevens is also invaluable to new operators. She is a national broker of parks who works hard to educate new operators and like George Allen publishes a monthly newsletter. She works out of Cedar Rapids, Iowa.

Both Illinois and Wisconsin have complex laws dealing with this issue, and both have excellent state manufactured housing trade organizations. Frank Bowman, the Executive Director in Illinois is one of the best and most knowledgeable executives in the nation. You might consider reaching out to them and seeing what membership could offer you which I believe would be considerable. (In full disclosure, I have been elected to both the Board of IMHA three times and have also been elected as Chairman of the Board in the past. My companies were members of both associations. As I am retired, all of that is past, but both associations provide valuable services to people and organizations.)

Far too many operators have paid a price for not knowing the laws, the rules, and the landscape in both Illinois and Wisconsin. The history of the industry is littered with both very large and small operators who have disappeared because they were ignorant of what they were getting into.

WISCONSIN HOUSING ALLIANCE
258 Corporate Drive, Suite 200C
Madison, WI 53714

Illinois Manufactured Housing Association
P.O. Box 2008
Springfield, IL 62705

You are already seeking legal advice so listen to them. I, and my staff, have sold over 15,000 homes from 1975 to 2008 and have never taken a home back - new or used. We did this in a number of states. Your buyer is deluded if all of your paperwork is correct.

Seller financing has become considerably more complex since the emergence of the SAFE Act and later followed by the passage of the Dodd-Frank Act. What was once fairly simple and more focused on the process is now very complex and expensive because of all the new laws even the smallest would be seller financier is now subject to.

The issues are even more complex because the financing of manufactured homes has many rules that are different than those that apply to mortgage lenders. As a result there are perhaps five law firms in the entire United States I would consider qualified and experienced to advise a seller financier and none of them are inexpensive.

Unless you are planning on developing an ongoing lending operation that originates a minimum of ten loans a month, seller finance is not a viable solution. There are some other options for smaller operators. If you want further input, feel free to email me.

I think what he is proposing is that some really run down parks will give up their abandon home rights in return for clearing up the back rent and a promise to rehab and sell the home to someone else approved by the park as the new owner with the hope they will perform better than the previous tenant who fled and abandoned the home. In some cases the park may just want the home out of the park and expect him to move it out.

In some states, the abandoned mobile home acts make this possible but not in most of them.

This is not a program for the inexperienced who have few or no connections, nor is it one for anyone with any real money to invest.

Some things are going to vary from state to state. In some states community owners have the right to reject payments from parties they have no contractural relationship with.

Some things will vary from community to community. Some communities may welcome your payment of back rents, others may not especially in states where they can reject your payments. Many communities have the right of first refusal on the sale of a home that can also block you even in states where they might not be able to block you paying back rent.

In addition to those worries is the worry of back taxes.

There is also the issue of if a lender is involved. Any lender is going to take a very dim view of you trying to steal their collateral unless they are content to abandon their lien.

The best advice I can give is to talk to all parties and make sure they are OK with your plan first before you pay out any money to anyone. The next advice is to make sure the home is not substancially damaged in some way that is not easily seen. 

What you are proposing does work in some states and in some communities provided back taxes and lender liens don't get in the way, but not in many communities or states.

When we actively selling new homes as a retailer for homes placed in a related land lease community we offered lower prices on the sale of the home in return for the right of first refusal. It was far greater than $1.00. The thing to remember is that Judges get to make the decision on enforceability and they are likely to consider the equability of the trade of rights for the offer of monetary gains.

Many major operators in Michigan learned the error of their ways via the courts and an expensive lesson it was. 

Each state has it's own laws.

California:

SENATE BILL SB 237 BY MIGDEN PROHIBITS AGREEMENT TO INCLUDE RIGHT OF FIRST REFUSAL FOR PARKS TO BUY YOUR HOME
Senate Bill SB 237 prohibits a rental agreement in a mobilehome park entered into or renewed on or after January 1, 2006 from including a provision that would grant the management of the park the right of first refusal to purchase the homeowners’ mobilehome for sale to a third party. Specifically, this bill provides the park owner or management and homeowner of a mobilehome park may enter into a separate agreement which would grant the park owner or management the right of first refusal.

There are approximately 4,850 mobilehome parks and manufactured housing communities in California providing spaces for an estimated 675,000 residents. According to the Senate Select Committee on Mobile and Manufactured Homes of the rental agreements their office has reviewed in the past, an estimated one third include a clause granting the park management a right of first refusal to purchase an owner’s mobilehome. A right of first refusal in a rental agreement requires the mobilehome owner to inform the park when they receive a legitimate offer from a third party and provide the park a copy of the offer and a period of time to respond with a matching offer. If the park chooses not to match the offer the homeowner can accept the offer from the third party if they are still interested.

According to the sponsor this bill is needed to prevent abuses that arise when rental agreements give park owners the right of first refusal. Prospective buyers may be deterred because of the delay caused by the park’s right of first of refusal could range up to 10 days. Additionally, in mobilehome parks the buyer of a mobilehome must negotiate the rental price of a space with the management while simultaneously purchasing a mobilehome from an individual in the park. In a park in which the management has a right of first refusal, the park could abuse this relationship by offering unfavorable lease terms and making the purchase of the mobilehome less attractive to drive the purchaser away and the price of the mobilehome down.

Supporters also argue the park owner has an interest in including the right of first refusal in their leases to guarantee their ability to purchase the mobile homes in their park. 

Dodd Frank is federal. 

I think where this "information" came from was the SAFE Act. The original SAFE Act was the brainchild of the Conference of State Bank Supervisors and, on the federal level, considered model legislation which every state legislature was required to pass as state law. Some states originally included exemptions for chattel financed residences, but were reprimanded for doing so, and changed their laws to conform with the original model legislation. (So much for model legislation and state's rights.)

The SAFE Act also authorized the U.S. Department of Housing and Urban Development (HUD) to monitor and enforce states' compliance with the statute's requirements for state licensing and registration, and HUD issued rules setting minimum standards for state licensing and registration. 76 Fed. Reg. 38464 (June 30, 2011). The Dodd-Frank Act transferred that authority from HUD to the CFPB. The CFPB thereafter published Regulation H, SAFE Mortgage Licensing Act – State Compliance and Bureau Registration System, 12 CFR Part 1008, based on HUD's regulation. 76 Fed. Reg. 78483, Dec. 19, 2011. These examination procedures do not cover the state registration requirements.

What is confusing is that CSBS and NMLS are not federal agencies, but they were the source of this model legislation.

I hope that answers your question. I know the answer is somewhat confusing to people not used to thinking like a DC bureaucrat.

Regarding if manufactured homes should have been included in the SAFE Act, I agree with you - they should not have been, but they were. There is also considerable mis-information out there about state exemptions for low number transactions. Federal rules prevail and they only allow it for some very limited and very specific transactions. This is contained in rule interpretations of the Final Rules, not in the statutes themselves. (The Final Rules were issued by HUD but the interpretations by the CFPB.)

We rarely post to BP or other MH forums anymore, but there is considerable information on here authored by both myself and my staff going back to 2006. We had no interest in any other type of real estate transactions and never posted on anything that was not MH specific.