Investors Beware - MHP Caveats #1
I broke this into a doc to edit so bear with me. It's long.
MHP ownership is not all peaches and cream. I read so many posts on the Forum referencing a 10% cap rate target and that's just not practical in today's environment. 10% cap rate on pro-forma income, maybe. But reality is harder and money doesn't grow on trees. The smaller the park, the bigger the hiccups are, relative to the cash-flow cushion. One-time non-operating expenses are not "figured" in your cap rate and pro-forma, but they sure do arise. And every time it's something new and different. Learning costs $$$$$$.
Low expenses is not necessarily the sign of a good operation. Low expenses means little spent on improvements and upkeep. That means there will be a lot of deferred maintenance that will cause trouble down the road. If you are not prepared to absorb the shock it can be a rude awakening. There are also other expensive learning experiences.
Case study: #1 EVICTION
X, Texas is a small city & the county seat. There are a few surrounding communities such as Y that have lower-quality trailer parks, but in town there are about 5 "major" ones, including ours. There are at least two factory-new dealers and at least two Toter-Installers who may deal in used MH's on the side in the general area. Outside of the general area is extremely rural for long stretches.
A long backstory which I could tell leads us to evict Bad Tenant homeowners of a 1985 double-wide that is 100% paid off. In fact it belonged to Good Tenant A, who died and left it to A's kid, who sold it to Bad Tenant. Bad Tenant claims to have a bill of sale (which would show the legal chain of title). In Texas, "Record Title" is like what the TDHCA-MHD (state agency like DMV for mobile homes) says. TDHCA says owner is Good Tenant A (who died). Obviously the dead owner cannot convey ownership directly to us.
Judgement for eviction has already been granted. We think we have agreement with Bad Tenant to transfer Legal Title and prepared Bill of Sale, which Bad Tenant agreed to sign on Friday which was last day before Writ of Possession would be executed. On Monday Regional Manager is on-site and Constable posts 24-hour Notice of Writ of Possession. Bad Tenant refuses to sign bill of sale transferring home to us and vacates 10 minutes before Constable shows up on Tuesday.
As of this moment, the home is collateral for the "damages" we've suffered, if we can prove that Bad Tenant owned home, because we have a judgment against Bad Tenant. Bad Tenant must leave or the constable will make them.
So if you are evicting someone, how are you supposed to do it? Here is what I have found out so far.
In Texas, Property Code section 24 governs "Forcible Entry and Detainer" which is the legal term for how you evict. Under http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=PR&Value=24.0054 The sheriff or constable shall execute a writ of possession under [TPC 24.0054(a)] in accordance with Sections http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=PR&Value=24.0054061(d) through (h). The landlord shall bear the costs of issuing and executing the writ of possession
http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=PR&Value=24.0061 Section 24.0061 says : (a) Landlords can evict from the "Premises." (b) & (c) notice req'ts.
Here's where it gets interesting. WHAT HAPPENS TO THE HOME THAT IS COLLATERAL FOR THE DEBT? Section 24.001(d)(2) says when the writ is executed: the sheriff or constable shall: deliver possession of the premises to the landlord;
(B) instruct the tenant and all persons claiming under the tenant to leave the premises immediately, and, if the persons fail to comply, physically remove them;
(C) instruct the tenant to remove or to allow the landlord, the landlord's representatives, or other persons acting under the officer's supervision to remove all personal property from the rental unit other than personal property claimed to be owned by the landlord; and
(D) place, or have an authorized person place, the removed personal property outside the rental unit at a nearby location, but not blocking a public sidewalk, passageway, or street and not while it is raining, sleeting, or snowing, except as provided by Subsection (d-1).
(d-1) A municipality may provide, without charge to the landlord or to the owner of personal property removed from a rental unit under Subsection (d), a portable, closed container into which the removed personal property shall be placed by the officer executing the writ or by the authorized person. The municipality may remove the container from the location near the rental unit and dispose of the contents by any lawful means if the owner of the removed personal property does not recover the property from the container within a reasonable time after the time the property is placed in the container.
(e) The writ of possession shall authorize the officer, at the officer's discretion, to engage the services of a bonded or insured warehouseman to remove and store, subject to applicable law, part or all of the property at no cost to the landlord or the officer executing the writ.
(f) The officer may not require the landlord to store the property.
Summary: The law says that you take their possessions and dump them neatly on the curb. In the alternative, the Sheriff can store them in an insured warehouse and, if they are not claimed, the warehouse owner can dispose of them to recoup losses. Obviously this only makes sense if the property is valuable. "Remove and store ... part or all of the Property at no cost to the Landlord or the Officer."
FACTS OF THIS CASE
Upon our request for Writ of Possession, Constable insists Landlord arrange for Toter to be standing by to take home away. Presumably it will be stored for 30 days and then the warehouseman may sell the Property to recoup the costs. Law says Sheriff may do this AT NO COST TO LANDOWNER.
By Law, Landlord is required to have 4 people standing by to dispose of Tenant Property under Constable Supervision. Nine of Landlord's Employees took 6 hours to remove Property from Inside Home to Outside of Home under Constable supervision.
This personal property sat for 24 hours and then went to the Dump which took 4 people 2 days plus more pitching in at the end. All on our dime. The dump charges a fee in addition to the hassle. The staff time is a loss that can't be "billed" so it can't be recouped in a lawsuit against Bad Tenant. IF Bad Tenant has any assets to recover. IF we can find them.
Sheriff's Constable tells Regional Manager that he won't prohibit entry from someone whose Property remains behind ("They have a right to go in their own home") and that Landlord has to Move Out the home in order to enforce the Writ of Eviction (e.g., no trespassing) against Tenant.
That didn't sound right & Regional Manager pushed back, as hard as she could and eventually called me asking what to do.
At this point I made a huge mistake. I wanted no trespassing more than the "equity" in the home. Get rid of the home at no cost [otherwise have to repeat process plus don't have Title to Home, remember.]
I say do what the Sheriff demands. Sheriff says that we have to pay Toter. Obviously Toter will not move if we do not pay and Eviction will Fail. Regional Manager bargains with Toter Driver for $6,000 fee to take to Warehouse and subsequently to Dump. $3k up front and $3k after.
Regional Manager worries that home is not worth $6,000 after it is ripped out. Would it not be cheaper to demolish?
She asks Constable to call Fire Marshall to condemn the home. Constable refuses. Things get heated. Constable threatens to arrest Regional Manager if she does not back down.
While Regional Manager was taking a break to "cool off," Toter Driver presented On-Site Manager with Invoice -- for $6,500 plus $100 per day billable to Landlord and refusing responsibility for damages to home. Also note, they will not "release" the home except to RECORD owner (who is deceased, recall). On-Site Manager signs without reading. This was not brought to my attention until the next day. Toter Driver obviously had this invoice ready to present to Manager prior to bargaining with Regional Manager, he must have brought it with him in the Truck.
[Was signing invoice under Duress? On-Site Manager is facing two constables, one angry and insisting that we pay for this move. Regardless, she made a grave mistake and I'm furious with her.]
Regional Manager returns, Constable apologizes & calls Fire Marshall, who inspects and refuses to condemn because home is still "habitable."
Regional Manager points to law that says we are not required to move the home at our cost or store the home, but Constable does not agree. "I know the right way to do my job. We do things around here by the book and I am not going to let some city folk tell me how to do my job."
The outcome is that the Toter disassembled home, took off skirting, severed all utility connections, removed the decks and stairs, etc. This home happened to be "pit-set" which means it was dug into the ground about 1 foot so that had to be dug out. By evening, Toter had hooked up one half of the double-wide, and pulled to back gate.
In the morning, Toter Driver returns and says home is too fragile to move because moisture from the "pit set" has corroded the frame. Toter will move the second half right up against first half and "board up" the home. The damaged frame can be (temporarily) fixed with a welded-on support beam, but Toter wants new invoice signed that says LANDLORD will store the MH at $100 per day (payable to Toter, of course) and they disclaim all insurance and liability.
At this point Regional Manager finds out that On-Site Manager has signed an invoice that says $6,500 and $100 per day and nothing about the dump. The new invoice changes the location of the storage and disclaims liability. Obviously neither invoice is acceptable (but Toter has "signed copy" of "first draft" of invoice).
So the home was yanked out and moved about 1000 yards and then deposited back on my property. That was last Wednesday.
My problem: I have a double-wide on my back-40 that obviously can't stay there forever. Also, it does not legally belong to me.
Toter has already contacted his lawyer to issue a demand that we pay the $6,500 ("or else" I don't know what.) He wants $6,500 plus more to move to dump after we go through abandonment proceedings and that's going to come back on me or there will be issues down the road using this Toter to conduct business.
If the home were economically salvageable (risky-borderline prior to being moved, obviously ludicrous now) it would need to be moved, set, inspected, connected, re-inspected, and skirted-and-decked. That's after [someone] acquires legal authority to change the Record Title with the TDHCA.
If the home is not salvageable it has to be junked and taken to the dump, either whole or in pieces.
Why can't I get a judgment with the home in place while evicting Bad Tenant? It's worth a lot more in place than out in a field.
Who should pay pay for what?
I am still investigating my options. I offered settlement to Toter's lawyer -- same deal I thought we had struck with Toter-Driver. That's not what Toter-Owner says the deal was.
Office of Judge that granted Judgment of Eviction and Writ of Possession says to call the Constable with my complaint, but Constable is an "Elected Official" and has no supervisor.
Constable's office is on lunch right now...stay tuned for the exciting conclusion -- probably I'll be told the same thing Regional Manager was told, which is completely against the law.
If things had gone "correctly," I'd have had recourse to the Home as-installed and that might be worth something, if I could get an Order from the Judge granting Legal Title from Judgement against Bad Tenant. Then use Judge's Order to tell TDHCA to put Record Title in my name and proceed (to dump or rehab & rent or sell, as appropriate).