21st CASH Program: Safeguards from House Moves


#1

I did some searches and have not seen this specific scenario discussed, so am curious if anyone has experience with the following use case:

** First assume the borrower/buyer has the $ to move a home. Our community does have people with the capital to move homes.

  1. Buyer is approved for loan via 21st CASH program
  2. Buyer has title which has a lien from 21st. Behind the scenes the community/retailer is still on the hook in case of default as per the CASH program.
  3. Buyer has not defaulted but decides to move home to their own land or other.

Issue:
Home is no longer on your land but you the community owner are still on the hook if the borrower later defaults. Imagine the issues this can cause.

Btw, I am aware some folks will say to create an agreement that buyer cannot move out the home from park. But I also know that this may not be legal or stand up in court depending on the state, court, and judge.

Thoughts, feedback, creative ideas?


#2

I believe 21st, as a condition of lending to the end customer, will prohibit moving the home. (I have not looked up my docs to verify).


#3

Thank Brandon,
We have not seen an end borrower loan agreement yet. I would hope there is such a provision. Do you have a copy of one? Or anyone else.

Per email with our contact at 21st, they could not prevent the move. This raised our alarms.


#4

Brandon is correct, the buyer can not move the home while it has a 21st mortgage on it.


#5

Randy
That would be ideal. Can I as what is that based on…is there a clause in the loan docs? As mentioned I have not seen an end borrower agreement and I am asking as a result of our communications with 21st.

Simply having a lien on the title does not preclude moving a home.


#6

I discussed it with them some time ago and they assured me they had it written into the loan agreement.


#7

Thanks Randy. I believe you. It seems we need to get 2nd opinions/confirmations from 21st then :joy:


#8

From 21st: “21st cannot dictate whether or not the customer decides to move the home from the community and if that agreement is made it would need to be in the your lease agreement.”

I’ll keep researching based on my original post. So I am not sure what has been told to people.


#9

Howard: 21st told me the same thing as you. That they did not prevent people from moving the homes. I have my first new home coming in Feb so I need to figure this out too.


#10

How do you prevent them from moving it is the real question. Agreements are only as good as the people willing to follow them.

We just started the cash program too.


#11

I would run this up the chain to someone higher with the specific question of what 21st will do to protect you the guarantor of the loan against a bad actor who is abusing the system to get a home for free.

If you are going to be required to step into the shoes of Borrower then you need to be able to have some strings to keep Borrower in line – and your big “stick” is the threat of evicting the people but keeping the collateral Through abandonment proceedings if necessary, or foreclosure, or deed-in-lieu, etc. You have to have a string on the collateral – just like 21st has the legal mortgage to protect them.

If you don’t have strings on the collateral and have to wait for 21st to Foreclose, and they’re going to foreclose on you before they foreclose on [small fish hard to find] then you’re essentially betting that the Buyer will pay the home off in full. Which might or might not be a good bet. If they trash it and abandon because they can’t move it (because you can stop the Mover with your Documentation of [whatever]) then you’re in the same place you would have been without 21st. You brought in a home and had to repo it. You have control of the collateral which is worth something.

If Buyer comes to move it out and you can’t stop then and 21st can’t stop them and they do, and then they stop paying 21st, now you are worse off than you would have been because you have no home AND you’re out the money.

We withdrew from the 21st CASH program for this reason or similar – the customer pays a lot of fees and has to jump through a lot of hoops to qualify for a 8% or 10% or ++ mortgage after which you’re underwriting a liability that is 15 or 23 years long and there’s no provision for transferring that liability. [For instance, you should be able to BUY the NOTE from 21st for its principal balance plus some transfer fee. Then you can say, I’m free of the obligation to 21st but Customer still has the obligation to Me. And then you can transfer that to the new Park Owner and it’s worth something (maybe less than what you paid for it, but at least something and you’re out).

Imagine I have 50 of these underwritten guarantees between 21st and Customer and Me as Parkowner.

Now I want to sell the park. Buyer is not going to pay anything for these 50 guarantees (they are not a revenue stream to me, or to Buyer – although they are to 21st – but a potential liability to you or new guarantor) and 21st is not going to let me off the hook (why would they?) I can’t force them on Buyer and I can’t force 21st to let me off the hook and pretty much I am obligated to make up any loss that 21st suffers upon the creaking of their stop-loss foreclosure cogs and gears.

And we all know how much foreclosure can cost a big slow behemoth. It’s a huge hassle and it takes time and they have expensive legal and professional costs. (e.g., they will hire a firm to come take pictures, they will hire a firm to re-market the home, they will hire a firm to oversee the security and management of the home in the interim, etc).


#12

I got approved for 21st in one of my parks but backed out after some serious thinking about it. I just could not get past the 20 years or so that it takes to pay off the loans and the fact that I have to play the rich uncle and co sign for some trailer park residents I don’t really know. 20 years is a long time and a lot of people at the lower end of society just can’t hold it together that long, and if they can will have moved on to greener pastures. It seemed to me that 21st was way overcharging for the loans - like 9 or 10%, since they would be backed by my solid credit score and my solid financials.

And then there were the home costs. As I remember they were in the low 40s by the time they got moved in, set up and 21st charged a bunch of fees. And it just is not clear to me that they would sell in my parks.

And I guess in the next 20 years we will go through one or two big financial crisis. There is that huge government debt bubble that keeps growing. The Fed has been keeping the lid on interest rates; what if they loose the ability to do so at some point? Things could really blow up. I don’t know if it would be so smart to be the co signer on 100s and 100s of thousand dollar loans on MHs. What if we hit high inflation and banks start calling all the loans they can, like they have in the past. Because of where I am in my investing career, my goal has been to get free of debt and focus on risk management. I don’t have to stretch things too much to see how the 21st program could be my downfall at some point. I’ve lost count of the number of financial crisis I’ve lived through that have wiped out the retirement savings of people I know. I really don’t want to be one of them.

So what’s the alternative? I’ve been fixing up homes that I had planned to junk and buying used homes moving them in and making them solid. I find I can make the numbers really work. In the last 5 months I have done and am in the middle of 13 homes. Just today, I bought a 1996 2br home sitting on a farm in good shape for $5,650 (the sixth home I’ve bought in four months). I will sell it for something like $17,000, which will be a few thousand above what I will be into it for, once I get it moved, setup and upgraded. The buyer will give me $2k down, pay $700 a month for lot and loan and have it paid off in, not 20 years, but 3 years, 3 months. I will recover the $14k - $15k I will have spent on it in 18 months after I sell it.

And I can sleep at night.


#13

Does anyone wonder why Warren Buffett is a billionaire? As I have say many times as with Furniture Mart, James Mansville, Clayton homes he takes a well run family business where one third of the employees lose their jobs, controls a markets (75% of Mobile Homes are built by Clayton Homes) and the Dealerships and for the smack-in-face own the lending company with over 9% loans to park owner. Until park owner see the enemy and have a mass boycott very little will change. Perhaps the big players that own over 65 parks like their special perks; the small owner just might want to be nice and shut our mouths----Your thoughts!!! We personally pay cash for the homes we need. Have you notices in the last 6 years the repo’s are very pricey and no discount for paying cash!!! Who controls the market–thank you, Warren!! We have personally told lenders like 21th if they want to finance a home in our park we have changed the written agreement that their is no grace period for no payment including the lender!


#14

Thanks all for sharing your wisdom. It seems topic after topic comes up on this program where something might not be as wonderful as it seems on the surface…

Def sounds like a bit (might be an understatement) of exposure … and a lot of liability to take on. Perhaps there are sweetheart deals at a certain scale but that could def make a difference if it is the case.

Im surprised to hear the terms are being pulled as far out as 23 years…


#15

Clayton doesn’t manufacture 75%, it’s just over 50%, but your point is still spot on.

Skyline just purchased Champion (Skyline was publicly traded so it was easier than Champion buying Skyline).

Covers this subject a lot.


#16

The big change is that the burden has been placed on park owners than normally have deeper pockets that people on the street buying one mobile home. Plus now instead of selling one home they want to sell 10 homes to a party less ap to default. Smart policy and thus less repo’s! The market is consolidating and the mobile home park business is one of last still existing with ownership of 1-3 parks still the norm. Since owning parks is such a good business I have wonder why Warren B. has not got into owning parks since he owns over 50% of the manufacturing, dealerships, and loaning in this business. Speculation on my part Warren B. in 5 years like other big owners , Sam Zell, Sun Communities, he will say hey Frank (elevation group) I have a couple billion how about me taking over control and at that point the transition will start in earnest like in farming, hotels, where it is all about the MONEY and big government and consolidation will be the norm. When you are a business it is importunate to gaze down the road 10-15 years and ponder!!!


#17

First line should be than instead of that–sorry


#18

This has happened to us a few times. Customer comes in with papers that Lender requires Park to sign, papers are very favorable to Lender.

We’ve had no issues marking those up to remove the Lender-favorable provisions and they still get approved.

Example - customer comes in with paper stating the lender needs the Park to agree not to screw the customer, and also Lender gets X months to remarket the home before they have to pull it out or start paying lot rent. We can agree not to do any of the naughty things (e.g. raise rent 500X) but reject the provision for free lot rent for the lender pending remarking.

Line out the provisions you don’t agree to, initial, date, sign, give back to customer, deal proceeds.


#19

I believe under $50k they go 15 years & over $50k 23 years. Personally, we have set a limit of 10 years for our captive finance company, but we deal only in used homes (~$20k price range) and only in two locations.

What pissed me off was that I have no say in structuring the deal that I’m a guarantor for.

Once I’m approved as a Park Owner in their program I don’t have the opportunity to say, “Hey 21st, this particular deal on this particular home for this particular customer needs to change or I won’t guarantee this loan”


#20

I have wondered that too, on homes that are outside financed and brought in by a customer , legacy or 21st has a doc they want you to sign that says that park wont charge them lot rent if customer defaults. I figured this was a deal breaker. If you don’t sign, do you risk the lender not funding the customer ( and therefore miss out on a home coming into the park? )