So I just took over 7 park owned homes and I am putting them on lease to own deals with new and existing tenants. Who should be paying the personal property tax bill when I still hold the title and they are making payments on the home until it’s theirs in 3 to 5 years? One tax bill is as much as $750 annually while the others are $150 to $300 each, annually. Thanks.
The short answer is “it depends.” It could be that the home is considered “sold” when you start the lease-to-own and it could be that the home is considered “sold” when the lease is fulfilled and the option payment is made. And it could be both, depending on which law or regulation is in question (and whether it is state or federal law). And different states have different laws.
Your state MHA will also be a good resource, but since Dodd Frank and SAFE, lease-option is not a common method of sales (since it is considered a mortgage) so they may assume you fall in the mortgage/sale/you-hold-escrow-from-tenant category, which might not be the “true” answer that the state tax department will use.
To be “sure,” you should probably check with a state-licensed lawyer because lease-to-own is classified as a mortgage in various ways and will be subject to various state and federal laws regarding mortgages.
On the other hand, in practice, if the tax authority gets the money it probably doesn’t matter in practice whose name is on the check or the tax account.
We do this in several states, and we lease the homes on a NNN lease, with an option to purchase. So, the tenant pays taxes and insurance which are billed to us. That is how we wrote the lease options. The payments are broken up into monthly payments- but we do not use the escrow method, but rather the bill creates an account payable, and we split the bill into 12 payments, thus we do not need to worry about escrow adjustments etc…
If you are allowing the tenants to pay the taxes and place the insurance on the home how do you know they have not canceled the insurance and allowed the taxes to go unpaid? If the place burns down with no insurance on it who is the loser.
Seems to me that as the owner of the home, until the deal closes, you would want to protect your investment by having your own insurance on the property and paying the taxes yourself.
If you hold the title you had better protect your investment.
Great answer. Very much appreciated.
The home is park owned, so the tax bills come to us, we pay them, then bill the cost back. Same thing with insurance, the homes are covered under our master insurance, we take the amount we pay for each home and bill it back to the tenants monthly. Like a reverse escrow.
also- when you have anyone you need to track have insurance, you put your own name (company name) on as an additional insured. This will also add your address to the policy. When any changes are made, you are notified by the insurance provider.
Last- you can always pull a local tax roll for your property and see if any homes in the park are not paying the taxes owed. This is good info to have, as in some states, if the delinquent taxes are paid for some amount of time, the payer gets title or deed to the property and that is that. If you file a security or ucc agreement with the state- they ‘should’ notify you if the taxes are not paid.