Buying From Distressed Mobile Home Owners, Lenders, And Landlords

Topics: Mobile Homes

Mobile Home owners fall into dire financial circumstances as a result of all the usual reasons that affect conventional homeowners; but there are unusual circumstances that create opportunity: When a mobile home is situated on an individual rental lot, or in a land lease park, being in default on the loan is usually accompanied by being in default on the lease too. This creates challenges for everyone.

The lender doesn’t want to foreclose the loan because it doesn’t want to become the owner of a unit on a rented lot. In many States, a landlord’s lien for unpaid rents on a leased lot supercedes the lenders lien for the debt. Although landlords usually work with lenders who have foreclosed Mobile Homes on their property, they expect to be paid all the back rents when the unit is sold.

Lenders who repossess units on leased land become debtors of the landlord for unpaid rent, and in some circumstances, for lawn maintenance and repairs needed to keep the park space up to park requirements. Relocating the unit would be expensive and wouldn’t really solve the problem because it would have to be place on another site where expenses would continue to accrue. Needless to say, lenders are very motivated to solve the problem.

Landlords don’t like the situation either. A vacant unit makes a park look bad. Even though they may be paid all the back rent eventually, they still have to keep the space looking good without getting any rent in return. Individual lot owners may not have to spend money maintaining the lot, but they do worry about attracting kids and various homeless people to the units, and being liable for any mishaps.

 You can imagine that, as much as he likes the idea of renting space to Mobile Home owners, he doesn’t like the idea of trying to proceed with eviction because many State laws give Mobile Home owners special protection against what could be a very costly eviction. The landlord is usually a very unhappy camper at this point.

 With the stage thus set, enter the entrepreneur who has found out about the distressed owner from birddogs, responses to direct mailings, advertisement, etc. Once he has established that a defaulting Mobile Home owner doesn’t own the space, he has to make a deal with the owner to buy it. Having done this, he is now in position to approach the lender and offer to buy the defaulted loan. With loan and lot in hand, he can make a deal with the occupant to buy the home at a discounted price in return for forgiving all the debt.

 Here’s an actual example of how this worked for us. The owner responded to a “we buy homes, any condition, occupied or not” ad. The space was filled to the brim with junk cars, tires, and assorted garbage. The windows were broken and the door panel kicked in. The landlord was offered $25,000 cash for the LOT where is, as is, with the tenant in place. He was only too happy to take the money and run.

 Next came the lender: A digital photo of the unit was emailed to the institutional lender together with an offer to purchase the defaulted loan for $10,000. It had been originated 4 years before for $64,000 and still had $49,000+ remaining on the unpaid balance, plus interest and costs. The lender finally accepted $11,000. Thus far, our investment was $36,000.

 The last stop was to get the occupant to sign over the title to us in return for a month’s additional free rent and complete forgiveness of the back rent and unpaid loan. We could do this because we were both the landlord and the lender at this point.

 Once the tenant had departed, $22,000 more was spent refurbishing this unit, cleaning off the lot, and landscaping it. Three months later, the unit and land were sold as a lot/land package with HUD financing for $119,000 net to us after all costs of selling and closing. This boiled down to a profit of $61,000.

The key to this profit was in being able to “marry” the unit to the land, kill the title to have it qualify as a real estate improvement to the land, then being able to sell it with conventional HUD financing to a qualified buyer.

No Dodd-Frank rules to follow!  

There are many ways to make a profit with mobile homes and the land they sit on. 

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