Park Owned Home LLC

Are you park owners putting all of your homes into a new LLC for each park or do you have one LLC that holds all park owned homes regardless of which park they are with… 

We set up a new LLC to take title to the homes in each MHP.  If you are an asset protection fanatic I suppose you could do each home in it’s own LLC.  I’ve never heard of anyone doing that however.  Keep your homes separate from your land - and all their associated revenues and expenses.  Get separate EINs and separate bank accounts for each of your LLCs for each MHP.  You need to know how profitable your real estate is vs. your ‘wheel estate.’  We collect all lot rents and pay all expenses associated with the land out of one LLC for each park (e.g. ‘Sunny Acres, LLC’), and collect all home rents and pay all expenses associated with the homes out of another LLC (e.g. ‘Sunny Acres Financial, LLC’).Our 2 cents worth,-jl-

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Does anyone who has separate LCCs
Get one check, home and lot rent combined and then writing one check to LLC for homes. Does anyone see this as a potential problem.
I am of the belief that if there is a problem an attorney will go after everything, LLC homes, LLC land to see what sticks

I was wondering as well. Seems like it would be a challenge to correctly get 2 payments made outt to different entities… Making it challenging to pay seems like not such a great way to operate. Looking forward to input …

Brian and jb,It is extremely difficult to get lot rent and home rent in two different payments so consider only one payment.  The key is to have written agreements signed by the correct parties (members of LLC) between the home entity and the park entity.If the payments go to the home entity, the agreement is that the home entity pay FMV (or a slight discount) for the lot rent and submit it to the park entity on a regular basis (monthly).  It would be reasonable that the agreement also state that for marketing purposes, the home entity does not pay rent unless the home is actually rented.If you prefer to have the payments go to the park entity and collected by the manager, you can authorize the manager to collect and deposit as agent for the home entity, perhaps even having the home entity pay a fee to the park for this.There are clearly many ways to do this, but I believe that the key to limiting liability is to have the formal agreements in place in a similar fashion to what you would have if the two parties were not related.  There is nothing you can do to completely shield the liability, but this is the way to start.Howard

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There are a couple of things to keep in mind – your financial and tax structure, your liability concerns, and your loan documents. Since I know the most about the loan issues, here are my thoughts.If you have CMBS/conduit debt, you will need two entities, one for the real estate and one for Jefferson’s “wheel estate”. You will also have two leases, one for the pad and one (for rentals) for the home. Therefore, you should have two checks. This is because the CMBS lender’s collateral is the land, not the homes and in the event that something goes wrong, the lender will not like that “Home Entity, LLC” is collecting the money that is pledged to “Land Entity, LLC”. I implemented this on some communities in Indiana and Illinois and after a little training of staff and residents (200-pad parks), we did not have any problems. It’s also a great motivator to get out of the rental business…In the Great Recession, we took back several communities that had contracts between Home Entity, LLC and Land Entity, LLC. They were always written to the overwhelming benefit of the Home Entity. We were moderately successful (maybe 50%) in challenging the contracts and collecting additional funds from the Borrower on the grounds that these were not arms-length transactions. The Home Entity should pay for things that you would expect a 3rd party home owner (Lonnie owner, e.g.) to pay. Speak with your Lender or Mortgage Broker, check with your attorney and accountant, and then arrange something as vanilla as possible. Howard’s line is key: "Have the formal agreements in place in a similar fashion to what you would have if the two parties were not related."Will

I have my loans with local banks and they did not require it be separate. I have insurance separate from the park for each home and of course park insurance.
Separate leases for home rent and lot rent.
I think Frank advised depending on number of homes that are park owned not to necessarily have two entities.

On another note I think we should all be extremely thankful for this forum, I have not found any other that comes close to providing this level of discussion with so many friendly and helpful people.

It is very easy to get your tenants to write two separate checks every month.  We just ask them to do it, and believe it or not, about 90% of them get it right the very first month.  We let them slide a month or two, and if they’ve still not gotten it right by month 3, we start enforcing a $20 Administrative Charge to transfer the money between entities.  That solves the problem for the last 10% that might have still be writing one check.My 2 cents worth,-jl-

Keep in mind that the LLC protection is only for the most extreme situation; you loss a court case and the Parks LLC has a judgment against worth more than the value of the park. I am sure it has happened, and for that I have prudently put my parks in different LLCs, but I think it very rare. I shudder when remember Frank’s hair raising story of his operating-a-utility class action case, and that is about as extreme as it gets (let’s all hope) and I believe even that one did not end up keeping the loss to only one park because of LLC protection. Of all the parks that are owned by people who visit this forum, I wonder how many have actually found themselves in the situation of loosing a park through a judgement and glad the loss was limited to just one park due to it being in a LLC. Anyone?

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Some detail on the class action lawsuit story. I was counter-sued by a tenant who I was evicting for non-payment of rent, claiming they did not owe the water charges because they had never agreed to them. This was contrary to state law, that allows you to amend a lease if the tenant had receipt and elects not to move out after 60 days of the notice (they become bound simply by not moving their trailer out). In this case, the tenant’s personal injury lawyer from another scam case made the argument that the tenant did not understand the water billing concept (despite the fact that she had paid for the water for many months). The case was clearly stupid except for one little fact. Her lawyer was a personal friend of the judge in the case (in fact, the judge’s biggest benefactor financially) yet we were unable to get the judge removed despite this clear conflict of interest (under Texas law it was assumed that the judge is above such earthly alliances and treats everyone the same, no matter how much money they pay him – yeah, right). So faced with having to get heard in a kangaroo court where the plaintiff’s attorney is obviously in bed with the judge, I settled the case. The whole thing, to this day, still makes me mad and pretty much ended any confidence I had (which was pretty low to begin with) in the U.S. legal system. The park was located in a small town in east Texas, and this scam could not have gone down in a real city or in a less corrupt part of the U.S. (let’s exclude Louisiana where the judge told me that to win my cases in his court I needed to hire his wife as my attorney – but that’s another story). Anyone who thinks that organized crime ended with Al Capone only needs to look to the U.S. legal system to see that corruption and abuse is a daily event and alive and well in the U.S. courtroom.

Randy - great point. I am interested if anyone has ever unfortunately loss their park due to a lawsuit and the judgement exceeded the amount of insurance on the property.

So a followup ,assuming the ownership structure is the same for multiple parks ( same parties involved)  Is there any reason why you should own the homes in broken out LLCs as opposed to all in one LLC? I am referring to homes that maybe are not super nice and assuming if the 200 home rent payment is about a wash, any reason for the breakout? 

I have LLC protection on my parks but I don’t think it is worth it to go that far.  Think of what you must have done to be in the situation where it matters; you loose a law suite brought against you were they are suing you as the renter of the home, not the park, and the judgement is so large that it exhausts your multi-million dollar  insurance policy and the value of all the homes in that one park. In that case, your homes in your other parks would be save if they were in another LLC. Short of that situation it does not matter.  I guess it could come to pass; you were warned of a terrible electrical problem that you did not address and it causes a fire that leaves a family of 6 disfigured, blind, and crippled. Yeah, that would do it. But if a person has good insurance protection and still finds himself worrying about such things, maybe this is not the business for him. I doubt you are such a person.

JB:In my experience on the lending side, the structure was always “Single Land Entity, LLC” and “Portfolio of Homes, LLC”. Each property was in its own LLC but there was no reason to have homes tied to a specific property-related LLC. In fact, there are many reasons why you wouldn’t want that at all.The “Portfolio of Homes, LLC” would sign a contract with the “Single Land Entity, LLC”, sometimes as a master lease and sometimes merely to allow “Single Land Entity” to manage (and pay expenses) the homes. The POH, LLC may or may not pay pad rent if the home is vacant, may or may not make repairs over $100, may or may not pay any leasing commission, etc. There were several actions with which I was involved where the contract was so unequal that we were able to recover some of the home costs from the POH, LLC.I find that placing the homes in a separate LLC allows you to track and segregate expenses, clearly separate the value of dirt from the homes for tax and depreciation purposes, and move homes as necessary without risking the bank poking their nose into your business. If you plan to own more than a couple of parks or more than a couple of homes to keep as rentals, I would certainly consider it.And now I’ll try to step down from this soapbox…Will

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Will thanks for the response.  Great thought provoking comments.  So one more follow up on all of this, when you buy the homes, how do you structure this all if you are doing a seller carry because you have to “break out” the value of the homes which are not going to be part of the seller carry. Do you say they are worth nothing or worth more, how do you tell that to the seller if he will carry on the park and you have a HOME LLC that you will put the homes in , and other homes from other parks would go into?thanks 

JB:I’ll leave the best advice on this to those like Frank, Jefferson, and others who deal with this from the buyer’s perspective on a daily basis. My perspective is shaped by my former role as a lender. Because the homes were chattel, we could not accept (and at origination of the loan, did not seek) homes as any part of the security. There are arcane reasons for it, but it basically comes down to: accepting too much revenue from personal property affects the tax treatment of the CMBS proceeds, most homes have debt against them from another bank, and “eww, mobile homes”. When the deals went sideways, we could then accept the homes as “additional collateral” but we did not assign any value to them on their own. If you received a $5 million CMBS/conduit loan that you were unable to refinance, we might allow you to pledge the homes in your park in exchange for extended the maturity date for 1-2 years if you owned those homes free and clear. In your scenario, you have a lender in the form of the park owner, who is willing to accept the land and the homes as collateral. That’s a good thing since he’s willing to provide a loan that reflects the value of the whole operation. I would still break out the homes from the park because when you refinance that loan in a few years, you’ll want to provide a clear statement to your next lender. For your immediate purposes, however, your collateral to the Seller/Lender is: The Park + The Homes in The Park (5 Fleetwoods, 9 Cavaliers, 4 Legacy, etc.) = Total Loan CollateralIf you default, the Lender’s recourse is to foreclose on the loan and take The Park + The Homes in The Park to satisfy their lien. To keep the other homes in your Portfolio of Homes, LLC free of any entanglements, you would specifically identify The Homes in the The Park by VIN. You’re not pledging Portfolio of Homes, LLC to the Lender, merely specific homes owned by Portfolio of Homes, LLC that happen to be in the park that you’re buying.As to value, the dirt is fairly straightforward, but in my experience, owners always overstate the value of their homes for many of the reasons that we’ve seen here on the board. Again, Frank and others will have more practical information.Will

Will that makes a lot of sense. Great input thank you for your perspective


We currently have an S Corp that holds homes in a Texas MHP. Can we use this S Corp to hold homes in other states?

How about if I were to have a retailer’s license, do the homes and the licensee need to belong to an entity registered in that particular state?

Thank you.

A Texas S Corp operates a lot like an LLC and can own property out of state, no problem.

Multiple LLC’s / S. Corps / Ltd Partnerships / Trusts etc can be good risk management tools/shields. However, my advice is to not go too overboard. All these entities need to be named in the proper way, on the proper insurance policies. If you have too many, you’re likely to accidentally leave off the wrong one some day. Keep a list of them all and give it to your insurance agent with regular updates.

Buying a park with 50%+ POH so first time potentially going down the separate LLC route. If you have a single-member LLC (no investors) and a local bank that is not collateralizing the homes, is it really worth the brain damage? The only hiccup I can potentially imagine is not being able to get liability on the homes themselves if they’re not broken out given some are pre HUD. Any advice is much appreciated.

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