Our LTO states “no equitable interest exists on the property for tenant-occupant until all terms of the agreement are satisfied and title is transferred”. We do not charge interest as it infers that we are financing and are dealing with a buyer (not a tenant). In the event of default, and if it goes to court, we do not want to foreclose instead of evicting. therefore have not charged interest but it is a big loss
However I see other park operators charging interest on LTOs.
Could you share how you are formulating/wording the monthly payments and total purchase prize when you charge interest ?
Any sample document would be appreciated .
I would caution against charging interest because now you are a lender. As a lender you must be compliant with the SAFE act. People do it and don’t get caught, but do you want to be the first that the Feds have identified as violating the law. Also, the local judges in an evictions case are not knowledgeable about the SAFE act. There was a specific government agency responsible for the enforcement of that, but Donald Trump with the assistance of Elon Musk dismantled the agency responsible to prosecute against the SAFE act.
Despite that, if you are offering loans on homes, I would also like to hear how you do it.
Technically a lease-option includes two contracts - a lease, and an option. The option is a fixed price and does not include interest. For example, the lease could say you pay $500 per month for 3 years to rent the home. The option (a separate agreement) could say, you have the option to buy the home for $3000 after 3 years or $1000 after 4 years. There is no mention of interest.
Please help me understand why you would not charge some level of interest, even short-term 3-4%. I understand not wanting to go through a foreclosure process, but zero % financing seems pretty unusual. Unless maybe the area is very low income or is the lot rent sufficient enough to allow the zero % financing?? Thanks
Because it is illegal for a business to provide seller financing on homes unless you are a licensed mortgage bank. It is called the SAFE Act. I believe the penalties are $30,000 per occurrence. If you have 100 home loans, your penalty could be $3,000,000. This does not apply if you own the home personally and you provide seller financing.
You can offer a different type of arrangement like a lease option or rent credit agreement.
People often extend loans to home buyers, but that does not mean what they are doing is legal. Also, as far as I know, no mobile home park has been found in violation of the SAFE Act to date.
“Because it is illegal for a business to provide seller financing on homes unless you are a licensed mortgage bank. It is called the SAFE Act” That’s not my understanding of what the SAFE Act actually states, based on my understanding there more to it than just that and does provide some room for owner financing in certain situation. Just my understanding and opinion. Yes, I agree there a certainly different ways to provide owner financing. Building in an “interest rate” on the payment amount would be one… Interesting info on the subject matter - https://www.mainerealtors.com/wp-content/uploads/2019/02/seller-financing-impact-of-safe-act-dodd-frank-act-2011-07-05.pdf
I’m not here to argue. You can look up the SAFE Act online or have your lawyer review it. Bottom line is if you provide seller financing of manufactured homes, you have violated Federal law, but I agree that nobody has been prosecuted yet.
I’ll be sure to chat with my legal as well, but do you have any knowledge of how that would apply in this example: Seller has sold homes to residents on installment agreements. Wants to sell park but wants buyer to assume notes. If buyer agrees to carry notes, and they are NOT licensed as a lender, are they in violation now?