The whole situation regarding the SAFE Act makes everyone nervous – ourselves included. Before you do anything regarding renting or selling the homes, you should:
Talk to your state MHA about the SAFE Act.
Read every article on the SAFE Act you can find on-line.
Think about what you’re trying to do with the homes, and if you have the capacity to abide by the SAFE Act in every regard, as a home seller.
Make your own, independent, educated decision
Why the big preamble? Because nobody really has a handle on this issue regarding the gray areas. So let’s start with the black and white areas and move to the gray.
You must abide by all of the rules and regulations in the SAFE Act if you sell a mobile home and carry the paper. Period. There is no gray area. You do NOT need to worry about the SAFE Act if you are selling a home for cash (although you do need to worry about being a mobile home dealer and those associated rules) or if you are simply renting a mobile home. No gray area there, either.
The gray area comes in if you try to make the renter a future homeowner. You would think that the U.S. government would be trying to help renters become owners, but no such luck. Instead, the SAFE Act has created roadblocks of uncertainty for this simple act which only serves to benefit the consumer. The rent-to-own construction that many park owners use is seen by some states as a “disguised mortgage” and therefore in violation of the SAFE Act. Many have challenged this argument, as the typical rent-to-own is an installment sale and not a mortgage (I have some of the legal opinions on this, and they are pretty darned good) and would render the mere sale of a refrigerator at SEARS a SAFE Act worthy violation. However, because of the uncertainty of that construction – and the complete absence of case law – many park owners have abandoned that type of construction.
The rent/credit construction does not meet any of the SAFE Act-tainted constructions as far as we know. It is used by many large operators, and has been checked out by many lawyers. It is different from rent-to-own in that it is a straight rental (landlord does the repairs, etc.) but gives the customer a credit (like green stamps) of a certain amount every time that they make a timely payment, which they can use as cash to buy any home in the park, not just the one that they are in. Additionally, they don’t have to ever exercise their credits, and can just rent for life.
Would we guarantee to anyone that this is a 100% fool-proof method of giving the customer an attractive benefit for renting in our communities? No. There is no case law. Everything that anyone says at this point is pure speculation. There is no case law to pin your hat on. There is no clear understanding by any individual or group – no matter what they may tell you – that is 100% a sure bet. So you have to do your own research and make your own, independent decision.
If you have done the research and decided that rent/credit is the right thing for you, then contact Brandon at (970) 856-4070 and he can get you a copy of a rent/credit agreement. However, we cannot make any warranties on it of any type. Until there is case law, we’re all in the same boat of uncertainty.
However, if the government ever rejected the concept of rent/credit, then nothing has really happened, as the customer would just lose their credits, and go on renting. That’s a big difference from a typical rent-to-own agreement, which talks about the tenant receiving the title in a certain number of months. If you want to be 100% safe, just rent the trailers and be done with it. We have a lot of pure rental agreements in place, and could easily convert all agreements to simple rentals going forward at the drop of a hat.
You would not imagine that the U.S. government would want to exclude people access to home ownership. But then again, you would not expect Obamacare or any of the failed initiatives we have today, so anything is possible.
I once did an article on the SAFE Act for the Journal. I called 10 different MHAs and 10 different MHA attorneys. None of them agreed on how SAFE worked, or what was and was not allowable. So much for a sure thing.
Just like anything else in this business, you have to do your own independent due diligence and make your own choices. Your options are really to sell for cash (no SAFE worries), sell and carry paper (need total SAFE adherence), rent-to-own (make your own call but looks scary in some states), rent/credit (looks OK to many people but think for yourself) or just rent (no SAFE worries).
If it makes you feel any better, I ask a fairly prominent (household name) real estate attorney about the SAFE Act early on. He told me that he thought an initial violation would result in a warning, while continued breaking of the rules would result in fines – just like anything else. You can eliminate any worries with selling for cash or renting. Or if you want to carry paper, get SAFE Act licensed. It’s only the gray areas that require thought.
One more note, because it’s an important one. Remember the mortgage meltdown of 2008? Well, it pretty much destroyed the ability to obtain a simple foreclosure. Today, to get a foreclosure takes months and thousands in legal fees. So I’m not sure that the SAFE Act is having as much of an impact on park owners’ decisions as the fact that evicting is a whole lot better than foreclosing. Even if SAFE did not exist, we would have abandoned selling and carrying paper on homes because of this.