Two Key Questions re LLLCommunities Future
Blog # 270 Copyright 2013 3 November 2013
‘George Allen Writes About Key MHBusiness Interests & Concerns!’
Perspective. ‘Land-lease-lifestyle communities, a.k.a. manufactured home communities & earlier, ‘mobile home parks’, are the real estate component of manufactured housing.’
Purpose of this blog. ‘To be the national advocacy voice, statistical research reporter, & communication resource for LLLCommunities, of all sizes, throughout North America!’
Ways to respond: ‘Critical responses & helpful ideas Welcome for future blog coverage; email@example.com; Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764
“…owns and operates portfolio of resort communities and lifestyle oriented properties. It leases individual developed areas with access to utilities for placement of factory – built homes, cottages, cabins and recreational vehicles.”
This euphemism* – heavy summary describes a land-lease-lifestyle community (A.k.a. manufactured home community, and before that, ‘mobile home park’) portfolio firm, and is copied from Yahoo Finance. GFA
Two hints & a question. This is one of 500+/- land-lease-lifestyle community portfolio domiciled in North America; it’s been listed in the annual ALLEN REPORT for 24 years – under different names. Why avoid mentioning manufactured housing?
* Euphemism: ‘Polite and often affected expressions used in place of common terms which can be considered offensive.’ From Collection of Figurative Language & Figures of Speech, PMN Publishing, Franklin, IN., 2011, p.13.
‘Two Key, ‘50,000 Land-lease-lifestyle communities’ – related Questions’
prompted by reading Ann M. Burkhart’s 16,478 word article titled:
‘Bringing Manufactured Housing into the Real Estate Finance System’
Copyrighted by Pepperdine University School of Law, as published in the Pepperdine Law Review during 2010, this ‘backgrounder’ was followed by the Uniform Law Commission’s adoption, on 19 July 2012, of the Uniform Manufactured Housing Act, recommending adoption of (state) statutes, enabling (manufactured) housing owners to title or re-title their homes as real property, “…if connected to electrical utilities and (when) a certificate of location is filed with the local deed office.” Quoted from Center for Economic Development’s 2012 Annual Report. And visit CFED online, for lender, homeowner and industry ‘briefs’ posted during year 2013.
Make no mistake about it, this proposal cum ‘would be’ statute is alive and well in the minds and plans of certain social activists, local tax assessors in search of more tax revenues, and certain bank(s) – none of which have examined the effects of such legislation on 50,000+/- land-lease-lifestyle community businesses nationwide!
Before we quote from said report, which makes many good points by the way, here’re at least ‘Two key, 50,000 land-lease-lifestyle communities – related questions’ to keep in mind as you read – and ponder – the effects of this proposed change, potentially affecting our business model, and your future as a LLLCommunity owner/operator:
1) Ms. Burkhart, why so little mention, let alone examination of, land-lease-lifestyle communities (A.k.a. manufactured home communities, & before that, ‘mobile home parks’) in this 38 page study, since this recommendation-for-change, if legislated, could/would profoundly affect this unique, income-producing investment realty asset class?!
2) And, just how do you see this proposed change (i.e. “Classifying all manufactured homes as real property from the time of sale to a consumer….” P.13) affecting the present day business model of owners/operators of 50,000+/- land-lease-lifestyle communities nationwide?
So, what’s in ‘Bringing Manufactured Housing into the Real Estate Finance System’, that’s prompted these two key questions?
Let’s begin with the LEXISNEXIS SUMMARY of the article, followed by its’ Conclusion. Then there’ll be quotations taken from three subsections labeled: ‘Today’s Manufactured Homes’, ‘Manufactured Housing Finance Model’, & ‘Increasing Credit Availability for Manufactured Housing’.
LEXISNEXIS SUMMARY. “…Misperceptions about manufactured homes are not limited to the homes but also exist about their residents. …Characterizing manufactured homes as real property would provide greater access to the secondary market, thereby increasing the flow of capital to lenders and lowering lending costs…The greatest potential for uncertainty exists in states that treat a manufactured home as personal property until it becomes a fixture or until the title has been converted to real property…Far fewer lenders make manufactured home chattel loans than make mortgage loans, especially since the manufactured housing market meltdown…In this situation, the legal protections afforded owners of manufactured homes should equal those afforded owners of site – built homes…Moreover, many state conversion statutes permit manufactured homes on leased land to be classified as real estate, which demonstrates the land ownership restriction is unnecessary.” P.1.
CONCLUSION. “Manufactured homes have changed dramatically since the introduction of their earliest counterparts in the 1920s. Unfortunately, the law has not kept pace. As a result, financing and other aspects of ownership are needlessly complex and uncertain, and access to affordable credit is limited, which has been a major obstacle to the industry’s recovery. Manufactured home owners are not accorded the same rights as the owners of site – built homes, though they often need greater protection. The failure to classify manufactured homes in the same manner as site – built homes has also caused the federal and state governments to overlook manufactured homes in the efforts to stabilize the home finance markets and to prevent similar crises in the future. Classifying all manufactured homes are real property from the time of sale to a consumer is a feasible and effective remedy for these problems.” P.13
Here we go…
Manufactured housing “…has the same characteristics as a site – built home and should have the same legal classification.” P.2. Perhaps NOT, if sited on a rental homesite within a land-lease-lifestyle community; as opposed to being built on a lot in a subdivision, or on a scattered building site -both conveyed fee simple.
“…manufactured home residents are less transient than residents of site – built housing. Whereas the average period of ownership for a site – built home is six years, sixty percent of manufactured home residents live in their home for more than ten years. Furthermore, seventy-eight percent of manufactured homes are owner-occupied, only sixty-eight percent of site – built home owners live in the home.” P.3. News to me, but reads well!
“Concerns about manufactured housing’s safety, appearance, and impact on neighboring property values are similarly misplaced.” & “Contrary to popular belief, manufactured home communities do NOT affect neighboring property values.” P.3. (Emphasis added. GFA) Again; news to me. Truth be told however, property valuation can go either direction; depreciation or appreciation, depending on 1) age and condition of homes sited therein, and 2) the overall care (e.g. curb appeal, rules enforcement, professional property management measures) in effect at the income – producing property.
“Manufactured home chattel loans should be included in the government relief programs not only because the homes are functionally equivalent to site-built homes…(but) because the manufactured home finance market and…rest of the manufactured housing industry has been struggling to recover from a meltdown that is virtually identical to the mortgage market meltdown.” P.4. It won’t happen; however, as long as (manufactured) homes, modular homes, ‘park model RVs’, etc., are sited on rental homesites in land-lease-lifestyle communities, increasing the risk of said residences being moved elsewhere.
“…the demand for new manufactured homes more than doubled from 1991 to 1998. Manufactured housing’s market share of new single-family homes sold during those years remained consistently above twenty-five percent. Initially, the increased sales were attributable to improved product design and construction standards, the rapidly increasing cost of site-built homes, and the expanding national economy.” P.4. NOTE. As most manufactured housing aficionados know, replacing the words ‘sold’ & ‘sales’, with ‘shipped & shipments’ respectively, in these sentences, tells more of the ‘real story’ – that ‘demand’ was/is largely artificial, as home manufacturers, chattel capital lenders and brokers, as well as some LLLCommunity owners/operators, colluded to ‘keep housing production lines moving’, often flooding local housing markets with unneeded and unsellable new homes! To underscore that sorry point, read the following half dozen quotes…
“…increased demand also was driven by the same bad lending practices that created the mortgage market bubble and caused it to burst. Risky behavior by manufacture home loan brokers…” p.4 NOTE. Insert ‘artificial’ between the first two words, ‘increased’ & ‘demand’.
Furthermore, “Manufactured housing dealers often act(ed) as loan brokers for their buyers. And customers “…preferred the convenience and speed of relying on the dealer to find a loan.” P.5. NOTE. Plenty of blame to be spread around…
‘…higher interest rates on manufactured home chattel loans, than on mortgage loans, were particularly attractive to them. In the resulting competition for borrowers, lenders began relaxing underwriting standards and loan terms. “Down payments decreased and the number of years over which the loan could be repaid increased. …lenders began financing homes for borrowers who clearly could not afford them.” P.5 NOTE. Nuff said, but…
“Hyper-aggressive sale and predatory lending practices became more common. Some dealers sold (HUD-Code) homes for as much as twice their fair market value.” P.5.
“…decreasing interest rates on mortgage loans made site-built homes more affordable. Despite the decreased demand, manufactured home production continued to increase.” P.5. NOTE. Recall the earlier observation about (forced) ‘shipments’ vs. ‘sales’
“In 2001, one-fifth of the homes that were sold were repossessed.” P.5.
All the while…
“…securitizations of manufactured home loans also greatly increased – from $184 million in 1987 to $15 billion in 1999.” P.5. NOTE. By year 2008 however, securitizations had dropped to $307 million! According to the ALLEN REPORT, land-lease-lifestyle community owners started picking up the slack, by ‘carrying’ contract sale paper on homes they sold on – site. Their paper value skyrocketed from a few million dollars in 1999 to more than $3.2 billion by 2009, and $5+ billion the following year! At the same time, new HUD-Code home shipments plummeted from a too brief renaissance ‘high’ in 1998 of 372,843 new homes, all the way down to what’s now been a five year nadir of 50,00+/- new homes shipped per year – a nadir that’ll likely continue until ‘readily accessible’ chattel capital returns to HUD-Code manufactured housing, and financial regulators back off!
Here it comes!
“Credit for manufactured home purchases would increase by characterizing all such homes as real property.” P.6. NOTE. Question: Even for those (manufactured) homes, on rental homesites, within one, more, or all 50,000+/- land-lease-lifestyle communities nationwide?
“Recognizing all manufactured homes as realty, from the moment they are sold to a consumer, would eliminate the obstacles that have prevented so many owners from obtaining the benefits of that classification. Universal treatment of manufactured housing as real property also would benefit lenders by creating national uniformity and by eliminating uncertainty.” P.7 NOTE. Perhaps so, but again, ‘What are the anticipated consequences for owners/operators of LLLCommunities nationwide?’ This is not addressed anywhere in this paper! ‘Why?’
Here’s an interesting and apt aside. At least one large commercial lender (bank) backing this conversion effort, has apparently not considered the likely chilling consequences of this action, on the land-lease-lifestyle communities they presently mortgage, nor their loan origination dollar volume in the future.
“…if the manufactured home is sited on leased land, the home will depreciate in value because home value appreciation normally is attributable to the land on which it sits.” P.7 NOTE. That’s not the whole story, and flies in the face of an earlier statement, that LLLCommunities ‘do not affect the value of nearby neighborhoods’. Which way is it? Frankly, there’re examples of ‘homes & LLLCommunities’ ‘appreciating& depreciating’ together in value, depending on ‘the land on which it sits’, AND the ‘condition of the home(s) per se’.
“Classifying manufactured housing as real property…will significantly change the methods for creating, perfecting, and enforcing a security interest in manufactured homes, and has important implications for property taxation, marital property rights, and homestead protections.” P.8. NOTE. Not much said in this report about the probable effects of said conversion affecting the type and amount of (real estate) taxes to now have to be paid by the homeowner. For example: “Manufactured home owners in some states will pay lower taxes if their home is real estate, but owners in other states will pay more.” P.11 versus “…the annual property tax rate for real estate is substantially higher than for personal property.” P.11. NOTE. Here’s a hidden agenda item: How, and by how much, the conversion of ALL manufactured homes to real estate, from their present personal property classification, will likely increase the tax base of local county coffers?
“The median monthly housing cost for manufactured home owners is $407. For tenants, it is $755.” P.10. NOTE. Really? Are we comparing ‘apples to apples here’? For example; are the same ‘housing cost’ factors built into both figures – or not? Easy to see $755/month as affordable conventional apartment rent somewhere – but inclusive or exclusive of utilities? And how ‘bout the $407? Is that inclusive of mortgage PITI (or is home ‘free & clear’), site rent, and utility bills for a month – or is water/sewer built into the site rent fee? Until those questions are answered, the dollar comparisons are misleading, if not meaningless.
“By classifying all manufactured homes as real estate, from the moment of purchase from a dealer, the uncertainties and costs of the current system will be substantially eliminated.” P.11. NOTE. And once again; what will be the tax consequences for the unsuspecting homebuyer; and, what will be the likely (nasty) consequences for the businessman or woman who owns the underlying investment realty – as in a land-lease-lifestyle community, a.k.a. manufactured home community, or ‘mobile home park’?
“Moreover, many state conversion statutes permit manufactu4rd homes on leased land to be classified as real estate, which demonstrates the land ownership restriction is unnecessary.” P.12. NOTE. Perhaps on scattered building sites, where someone is leasing a small parcel of real estate from a family member (e.g. as oft happens on a farm, among extended family); but what about when sited within a land-lease-lifestyle community? Industry experience with attempts, over the decades, to condominiumize (or, subdivide and sell homesites, within) this property type have met with mixed success at best. Major issue? How to effectively replace enforceable (by eviction) Rules & Regulations, often emplaced per state statute, with Covenants & Restrictions, no matter how tightly written, that are next to impossible to enforce (due to property rights issues) – beyond executing and recording a lien to be (maybe) resolved at some future date?
“…to treat all (manufactured) homes as real estate can be accomplished quite efficiently because the necessary legal and administrative apparatuses already are well established. Deeds are used for title transfers. In fact, at least two states already have statutory form deeds for manufactured homes.” P.12. NOTE. What two states? And are these statutory form deeds applicable to manufactured & modular, as well as ‘park model RV’ homes in land-lease-lifestyle communities?
“Lenders have adapted a long – standing finance tool, the multi – draw construction loan, to ensure the mortgage the buyer executes, at the time of purchase, has priority from that moment.” P.13.NOTE. And again; is this applicable to homes sited on rental homesites within land-lease-lifestyle communities; and if so, what are the probable consequences thereof?
Well, there it is, a digest of information published three years ago in ‘Bringing Manufactured Housing into the Real Estate Finance System”, now ‘making the rounds’ as recommended (state) legislation per the Uniform Law Commission. Has interest in the Uniform Manufactured Housing Act come to your state yet? Expect it to do so….
This is one of those rare times when being forewarned (‘Think of the possible consequences to you and your land-lease-lifestyle community business model!) is akin to being forearmed!
1. CFED: Center for Economic Development
George Allen, CPM & MHM
Box # 47024, Indpls, IN. 46247 (317) 346-7156