A mobile home is classified in one of two ways: as personal property or as real estate property. Selling a mobile home as real property with an installment agreement is subject to state and federal lending regulations. In either sale classification, installment agreements are frequently used in structuring the deal. Installment agreements allow the buyer to purchase the home making payments directly to the seller who becomes the lender.
Mobile Home or Manufactured Home
The terms mobile home and manufactured home refer to the same structure. Mobile home is an older, still frequently used term. The term manufactured home started when the Department of Housing and Urban Development (HUD) imposed construction and safety standards in 1976. Manufactured homes built after this date have a red certification label attached to the exterior.
Manufactured or mobile homes are initially considered personal property, more similar to a boat than a home. It is converted to real property when tied into land through a process called "affixture."
Choosing the Right Paperwork
Two types of mobile home sale contracts exist: a contract of sale and an affidavit of affixture. Determine which applies to your sale. Once paperwork is properly executed, record it at the county clerk and possibly the motor vehicle department if required in your state.
Use a contract of sale in situations in which the mobile home is not affixed to any real property or land. This type of sale is considered personal property. There are two mainstream financing options for a contract of sale: personal bank loan or seller-backed installment agreement.
Use the affidavit of affixture when the property is fixed to the ground; affixture converts personal property to real property. While traditional mortgage lending is available for this type of sale, sellers may still offer seller-backed financing. Sellers offer installment agreements for several reasons including but not limited to spreading taxes over time and attracting a wider pool of buyers.
Completing the Sale with an Installment Agreement
- Perform due diligence on the property. Make a list of all appliances, fixtures and any add-ons included in the sale. Write out which items, if any, are excluded from the sale. Get all necessary inspections before finalizing contracts.
- Agree on a price. Calculate payments and payment terms, including the interest rate, using online calculators. Complete the installment agreement specific for the loan terms.
- Get approval of mobile home park owners. Their signature is required on the contract prior to filing with the county clerk. Execute the agreement by having all parties sign in front of a notary.
- Complete the affidavit or contract of sale. All sections must be completed in entirety, otherwise the county clerk will reject the transfer. File and pay the fees with the clerk, checking with the motor vehicle department to see if you need to file there, too.
While the payment terms are noted on the contract, the installment agreement does not get filed with the clerk's office or the DMV.
S.A.F.E. Act and Dodd-Frank Compliance
The S.A.F.E. Act and Dodd-Frank Act increase regulatory compliance. At their core, they say that any mortgage note must be sold through a licensed and regulated mortgage lender. These regulations make seller-backed financing installment agreements tricky.
Seller financed transactions, also known as end-user financing, are common with mobile homes and in mobile home parks. To remain compliant with the S.A.F.E. Act, affixed mobile homes should not be used as collateral for the installment agreement. That becomes a mortgage and violates S.A.F.E. However, non-collateral loans have added risk to the lender – who is the seller in this case. Note, if the mobile home is being sold to an investor, this rule doesn't apply.
The Dodd-Frank Act creates some exceptions allowing an individual to execute one end-user transaction per year. This protects the seller, so he has collateral should the terms of the contract go unfulfilled. Dodd-Frank only applies to residential borrowers as well.
Third Party Help: Realtors and Lenders
Few real estate agents work with mobile homes because the commissions are so low compared to standard homes. Realtors are tremendous resources with contract execution, proper recording procedures and the knowledge to direct sellers to pertinent resources for installment agreements. A realtor will not establish an installment agreement for you.
Consider finding a lender that specializes in mobile home financing to protect all parties in the transaction.