Hi, We’re negotiating with a mom and pop MHP that is offering 80% seller financing and we’re stuck on the note being recourse vs our desired end being non-recourse. Their lawyer gave an example of if we mis-managed the park, reduced the value some how, stopped paying, they’d get back a reduced value park and they want recourse to recoupe their asset. Ok I can see their point, but then few loans would be non-recourse if the seller wanted zero risk.The note would be in the range of $200k.Any thoughts? I suspect the seller will not budge on the note being recourse.
Frank has mentioned this before (tho I cannot remember where), but an idea you may want to float out there is an agreement stating you cannot evict anyone unless they do not pay rent or are constantly breaking major rules. In other words, it ensures you can’t just go around evicting people for no reason which would go a long way towards protecting the seller from you reducing noi/park value.Also, keep in mind if it is recourse then you’d obviously put up far more opposition to “losing” the park - like dragging out the legal battle in court as long as possible. I’m not sure how you’d want to frame that argument to the seller without it coming across negatively (like a threat of sorts), so perhaps Frank can chime in on that from experience. But the main idea is that if you’re going to lose the park, the seller getting fully compensated will not be a simple process.
We had a similar experience with a seller and his attorney. We had considered offering a larger down payment to the seller to show we had more at risk to lose if we mis-managed the park or defaulted. However, we ended up just accepting the note as recourse and signed a personal guarantee. We knew we were buying the park at a good price and in a good market. And there’s rarely a risk-free investment. You have to decide the level of risk you are comfortable with.
Guys with 3.5 % money available at credit unions WHY mess with a seller’s money??? Cash the park owner out and be DONE with PRESENT AND FUTURE PROBLEMS with him breathing down your necks!!!
I’m not sure what state you’re in. In NC, all purchase money financing is non-recourse. If the borrower defaults on the note, the only recourse the lender has is to the property.
If this is non-negotiable on the part of the seller, try to get limited recourse (something less than $200K). As another alternative, negotiate the events of default to a very narrow list that does NOT include mismanagement of the park. It should be non-payment only; that would typically be the only park-related event of default a bank would have.
The reality is that if you get bank financing at 80% loan to cost, they will most likely require your guaranty.
I’m speaking as both a park owner and credit officer at a bank.
Keep in mind that their lawyer is just earning his fee. You could always counter with other terms more favorable to you. So, if they want a 10 year note then you could counter with 15 years for the note. Also, Carl above makes a good point, there may be bank or CU financing out there which would work well for you. If so, you may be able to get a better sales price since they would be getting cashed out.
Jim Allen