Summary:
It's not your typical scenario regarding a loan request for a manufactured home on a land parcel. It's a unique bird, or in this case, a house with a beautiful llama in the backyard, that sets this loan request apart from the usual ones...
The borrower owns the land in fee and the manufactured home affixed on top. The borrower is responsible for obtaining a certification that the manufactured home is affixed to the ground with proper government certifications, making it a real property asset..
Even though the structure is affixed to a permanent foundation with a proper certification, it can still be unbolted, wheels installed, and hauled away with an 18-wheeler. I once made a loan like this where the borrower defaulted and moved his manufactured home, leaving only a land parcel. As a result, underwriting loans of this nature should be considered loans on a land parcel.
The property is suitable for their intended use, such as gardening and animal keeping, and ensuring the home is installed on a permanent foundation.
Or do they own the manufactured home on a land parcel owned by a third-party investor, requiring monthly rent?
Article:
A lender may encumber a piece of real property by recording a deed of trust or mortgage in county or municipal records. Separately, a manufactured home without the property certification is considered personal property. A lender can encumber the manufactured home by filing a UCC-1 with the Secretary of State.
Encumbering the Personal Property: Encumbering the manufactured home
The Uniform Commercial Code (UCC), first published in 1952, is a comprehensive set of laws governing all commercial transactions in the U.S. The UCC laws also regulate personal property transactions and provide for a public notice mechanism so that the Secretary of State can identify liens.
A recorded UCC-1 statement filed with the Secretary of State's office is part of the transaction's closing. The UCC-1 is an encumbrance and remains a matter of public record until a recorded UCC-3 occurs, reflecting the debt's satisfaction.
The UCC-1 filing will cover all related personal property, including loan proceeds held by the construction fund control company, building materials delivered but not yet placed on the foundation, working drawings, third-party reports, entitlement approvals, and building permits.
Specific Transaction:
The mortgage broker, a key player in this process, is a fiduciary and facilitator to the principal parties. They play a crucial role in assisting the borrower in finding the right lender, negotiating terms, and ensuring all necessary documentation is in order. Their role provides a sense of security and confidence in the loan process, reassuring the borrower that they are not alone in this journey. They act as a liaison between the borrower and the lender, ensuring that all parties are on the same page and that the borrower's interests are protected. The mortgage broker also assists in understanding the loan terms, including interest rates, repayment schedules, and potential penalties, and helps the borrower navigate the complexities of the loan process.
My client has accepted an offer to purchase a property with a manufactured home on it, containing a fixed foundation on a 1/4th acre parcel. The property will be non-owner occupied and made available for rental. Similar properties are in demand because of the availability of gardening for fresh food, the ability to keep a few animals on the property, and the perception of living off the grid. The potential renter owns a llama named Dolly, a few goats, and chickens. They are excited to find a home for Dolly Llama, their pets, and the kids.
The lender responded.
The first question to be determined is whether the real estate is being purchased in fee ownership or rented from a third party. When a manufactured (modular) home unit is owned by a third party on a leased parcel, the unit is considered personal property.
The property is on a paved street with available water and electricity connections. The sewage connection is to a septic tank.
Is the land parcel in a community association of similar properties subject to rules, such as covenants, conditions, and restrictions? Does the community have written bylaws?
The borrower should contact the building and planning department to verify that gardening and some animals are allowed on the property.
What is the description of the manufactured home, including size, age, and amenities, and is the home installed on a permanent foundation? Was the installation engineered and permitted by the local municipal building department?
The manufactured home will remain a personal property asset in California until the owner applies for and receives a certification referred to as a 433a permanent foundation certification. This certification ensures the home is installed on a foundation that complies with the California Code of Regulations, Title 25, Chapter 2, Section 18551. Obtaining this certification involves specific municipal approvals, which the borrower needs to be aware of. The process includes [detailed steps of receiving the certification, such as submitting an application, undergoing an inspection, and receiving the final approval]. The completed certification is then recorded in county records and will be in a future title search. It's important to note that the borrower is responsible for initiating and completing this process, and the mortgage broker can provide guidance and support throughout.
Upon completing a loan transaction or conveying the property title, a title company will issue a title endorsement (ALTA 7). This endorsement is not just crucial; it's informative. It ensures the reassignment of ownership of the manufactured home from personal to real property, a critical step in the financing process. It keeps you informed about the status change of the house, making you aware of every step in the process. This endorsement ensures the loan is secure and the property is transferred correctly. It indicates that the loan process is nearing its completion. The ALTA 7 endorsement is a significant milestone in the loan process, as it signifies the successful transition of the manufactured home from personal to real property, reassuring the borrower and lender that the loan is progressing as planned.
The successful completion of the loan transaction and the reassignment of ownership of the manufactured home from personal to real property through the ALTA 7 endorsement are testaments to the thorough and secure process. This meticulous process, designed to ensure your confidence and peace of mind, ensures that Dolly has a new home and that the loan arrangement is successful. It's a journey that may seem complex, but the thoroughness of the process is there to guide you every step of the way, ensuring your confidence and peace of mind.