Our park is in escrow, and there are about 25 homes that technically are owned by the park, yet are on either lease option agreements or on a rent credit program. The buyer is saying the “credits” from those 25 homes should be paid to the buyer at closing. For example:
Mobile home value = $10,000
Tenant has been in home for 20 months and paid a $500 non-refundable option fee upon move in.
Tenant has paid rent for 20 month and received a credit toward future home purchase of $200 per month.
Thus, the buyer wants $4,500 credit ($500 + 20 x $200) at closing.
Since there about 25 homes, that adds up to real dollars.
Is that the correct way these types of issues are normally handled?
Would appreciated any thoughts you may have about this issue.
With your hypothetical home valued $10,000 what is the buyer paying for it? Are the rent credits transferable to any home in the park that is for sale or only the one they are in? If they are transferable then it would make sense for the buyer to get them in my opinion.
If the buyer is paying you a premium for the park based on an implied value and risk of the homes then folks with more experience need to give input. However if you have valued your park on lot rent only then see if you can just sell all the homes for $1 or $500 to the tenants and be done with it.
I think the approach makes sense on the surface, but note this comment is coming from the peanut gallery.
Only question is on the option fee you mentioned. An option to purchase can have a limited legal timeframe for someone purchasing as their primary dwelling - I think in TX it’s either 6 or 18 months, otherwise need to use an Executory Contract which has red tape I would only jump through with an attorney.
If you meant it was a non refundable deposit for the lease then no issues.
Will buyer be assigned the RC agreements? What do the agreements actually say? As a buyer, if I were buying the rent credit agreements as part of the park purchase you had better compensate me for the liability I’m assuming of $200 per month per home times the number of months of credit that has accrued prior to closing, because I’ll be on the hook for that amount when the RC “option” is exercised.
Did the initial contract not have verbiage that addresses this ( i.e. personal property or homes like the MHU contract)?
Thats a pretty big question mark to leave until the end. I would assume they are included as part of the deal and thats a pretty big deduction to leave to the end. Is it a great deal where you might have room to meet part way or are they doing and type of seller carry or will take a 2nd on that ? Give more info if you can.
So this is the problem with rent credit – the contract goes between the person in the home and the person who owns the homes plural. If it’s just a single home and the credit “applies” only to a pool of one home, it looks a lot like an illegal mortgage.
If the pool includes a home the person is living in and that is sold out from under them, what happens to the credits? The rent credit contract should address this, but there is a lot that smells like fraud or deceptive trade practices if the park-owned homes transfer and the credits don’t. Who sets the price of the homes for sale at a certain price (in credits?). Is it arbitrary? You can argue with buyer about how much the homes are really worth ($5500 to buyer in your hypo at $10k to you, because there come pre loaded with $4500 “credit” towards a fixed price of $10k) and come out somewhere.
But over time surely the homes are worth less and less so the RC contract should not specify a price. Does it? If so, looks more like an lease option than a RC.
If the price is arbitrary, the homes are worth what they are worth, and the liability is what it is, and you and the buyer have to decide what your contract says is supposed to happen and whether you like that or not (is it a deal killer).
There;s a simple solution to this RTO scenario for a park buyer / seller. True the RTO is like an Xmas savings account and the savings value needs to be xfered to the buyer, that is if the homes are fully valued in the purchase contract price. A solution is to value the RTO homes nominally, $3kish. Which is in the range that park owners just toss and give the home to renters turning them into owners, poof in a simple step. Sign the title over, done. So re-value the homes down and ignore this RTO issue.
HI Phantom, I’m late to this punch bowl of issues. Your lease option secenario with transfer of title after 20 mo has Dodd Frank / banking division violation all over it. Sun Communities rent “credit” program is a head fake attempt to avoid equitable interest in a speicfic home. No case law re Sun. What I am surprised at is that the CFPB has not strung up any parks for these easy to prosecute violations of lending to occupants without a license. Ohio did a few a few yrs ago under the Safe act and 1st yr of DF. But none that I have heard of recently… Interesting all the way around re this typical issue in parks that the enforcers have not made moves… I’m into this up to my eyeballs too so I’m not tossing issues over a wall!
This is why 21sts CASH program seemed like the right path, they hired Licensed Loan Originators to originate to occupants Dodd Frank compliant.
I am no attorney or expert… and sit just to the left of Jhutson in the peanut gallery but…
We always talk about cash on cash return for valuing a park investment. What did you sell the park for… and did it take all these dollars into consideration?
Based on your example the seller is looking for you to write a check for $112,500 at closing; the seller is purchasing an income stream of $5000 per month ($150,000 total) over the next 30 months on what eventually will be a park of TOHs (and the income stream associated with that type of park).
Again… I am no lawyer but looks to me that if you do as the buyer is requesting you will be out $112,500 now and $150,000 over the 30 months. If your sale price had that in the valuation then great… if not and the park was sold as a valuation on 25 TOHs… then selling right now may not be appropriate. You may be able to rescind the sale at this point or just pay the earnest money out and put back on market in 30 months- after you have pulled in all the cash flow from the MH options.
Again… I am absolutely no expert on this… just another peanut in the gallery.
Your lease option secenario with transfer of title after 20 mo has Dodd Frank / banking division violation all over it. Sun Communities rent “credit” program is a head fake attempt to avoid equitable interest in a speicfic home. No case law re Sun. What I am surprised at is that the CFPB has not strung up any parks for these easy to prosecute violations of lending to occupants without a license. Ohio did a few a few yrs ago under the Safe act and 1st yr of DF. But none that I have heard of recently… Interesting all the way around re this typical issue in parks that the enforcers have not made moves… I’m into this up to my eyeballs too so I’m not tossing issues over a wall!