LLC, Partnership & Ownership

I am new to the MHP Investing. I attended your Boot Camp 3 years ago. I did not buy a park, but I never forgot how helpful the information I left with… Within the last 30 days, I have read the Self Study Book, 30 days of Successful Due Diligence, Listen to 7hrs on How to buy MHP and 10hrs of the archive Frank & Dave Show. Read through and printed a volume of threads on the MHP forum. And the Last two weeks, I have reviewed different MHP listing, putting to practice the Due Diligence tools for evaluating park, before submitting an offer. Thank you for providing a complete and turnkey MHP study course. I got so much to learn, but putting all this effort has educated me and got me to a point where I now feel comfortable putting it to action. I hope you can help with a few general questions and clarify, so I can get over this hurtle.

First scenario, I would like to purchase a park with my partner. My partner will be use only to obtain the loan for purchase. But I will retain 100% of the ownership, pay the down payment, expense and operations reside with me. I am not clear on how a LLC would own the park when my partner owns the financing. Is it similar to just signing over the Deed as in a Single Family Home. The signature on the courthouse deed owns/controls the property?

Second scenario, is just like the first scenario above. My Partner obtain loan for the LLC. The only differents, my partner owns a percentage of the Park (example 30%). I have setup a Corporation in the past. I should not have a problem setting up an LLC. Is it as simple as forming an LLC and issue the appropriate shares? And completing a Operating & Partnership Agreement?

IF a real estate agent/seller requests a prequalification letter along with a contract, would my partner contact a loan broker and get a prequalification letter. I found a few mortgage companies/brokers on the

What are your thoughts on purchasing a MHP in a land trust and naming the LLC as the beneficiary?

I thank you for any input. And I look forward to seeing some of the forum members again at the March Boot Camp 2014.

I can’t answer all your questions, but I can answer some of them.

Taking your second situation first, the answer is even simpler than you suggest. An LLC does not have (or need to have) “shares.” Your LLC agreement sets up the framework of who contributes, and when/how, and who gets money, and when/how. An LLC is very flexible and you can have any arrangement you like, although for tax reporting there are some limitations with respect to writing off losses (the “economic substance” rules). Certainly a straight 70/30 split (of equity, profits, and losses) is no problem. You don’t need to issue documents of ownership, but you do need to have the ownership recorded somewhere.

I strongly suggest having a lawyer draft your LLC agreement, just because that document controls just about everything about your LLC – and if you disagree with your partner, you want to have it recorded what the resolution is “supposed” to be. You have to think of things like who is going to inject capital and on what terms, and what if the person who is supposed to doesn’t want to. And who gets to decide when there is enough cash for a distribution, and how often?

In your first example, the bank that is financing your partner’s loan is going to have something to say about how you can or cannot arrange things. I doubt the bank would be okay with your partner taking a laon for the park but having no ownership (or control). There does exist, at least in Delaware, the concept of a 0% (controlling) member of an LLC, but that is a little exotic for most banks that you might deal with. But if your partner can secure the loan without ownership interest, then what makes them your “partner” in the first place? Are you splitting some of the profits with that person, or simply paying for their loan on a “pass through” basis?

In any event, the most likely scenario is that the LLC you create will be on the deed records, and the loan record (and the collateral for the loan) will be in the name of the LLC. The LLC will really obtain the loan, with your partner being the “guarantor,” “sponsor,” and/or “indemnitor” for the loan. You may be able to swing the profit/loss/equity percentage in your favor (if your partner is willing) so long as the bank is satisfied. If it has to be 100% you and 0% your partner you’ll probably need a lawyer to look at the bank’s contract language very carefully and/or negotiate with the bank. If it can be 99% 1% then you can see if the bank will accept the partner’s 1% as sufficient, so long as the 1% member controls (which is how we do things – it’s essentially the same as a limited partnership with the GP owning 1%).