Manufactured-Home-Community-Conversion

Manufactured Home Community Conversion

A Resident Initiated Condominium Conversion refers to the subdivision of a mobile home park into individual units by the Residents of the park. As used in this article, the term “resident initiated” does not strictly refer to a condominium conversion started by the residents. Under California law, a “resident initiated” condominium conversion actually refers to any condominium conversion in which 80% of the residents who live in the park sign a petition, in the prescribed format, regardless of who actually initiated the conversion. We have been involved in “resident initiated” condominium conversions where it was initiated and controlled by the park residents, and those initiated by the park owner or a third party (such as a non-profit), and completed in concert with the residents of the park. In either case, there are a number of benefits which accrue to the residents under the Subdivision Map Act if a condominium conversion is qualified as “resident initiated”. Given the assumption that a purchase of the park is possible (based upon financial feasibility analysis), the developer, with the cooperation of the residents or the residents as developer, can take advantage of the provisions of Government Code Section 66428.1.

Before we get too far ahead of ourselves, a brief explanation of a condominium conversion is necessary. The first two forms of resident ownership discussed on our site are the Mutual Benefit Non-Profit Corporation and the Limited Equity Cooperative. Both of these forms of ownership do not change the specific nature of each mobile home park resident’s rights, rather, the residents form an entity to purchase the park in whole from the proprietary owner, and the residents continue to lease their space. They now, however, lease their space from the entity they formed, they control which now owns and runs the park. While the homeowners’ lease of their space may be much more favorable, and may now be a long-term lease, the homeowners’ basic interest in the lot under their home remains that of a leasehold.

A condominium conversion moves “Resident Ownership” into an entirely new spectrum – that of individual fee ownership. A condominium conversion is a “Subdivision” of the land which makes up the park into individual units, and common area units, so that upon completion, the homeowners will now own the unit which makes up the space they previously leased. This is true of several forms of Subdivision, including a Planned Unit Development and the condominium conversion we are discussing herein. What makes a condominium conversion unique is what the “unit” is comprised of. I assume for purposes of this article that the reader is familiar with a traditional, hard-structure condominium. Traditional condominiums are large buildings comprised of individual units (condos). Because the units are all connected by common walls, floors and ceilings, they cannot be divided into physically separate units. Accordingly, the “air-space condominium” was developed to allow the units to be legally sold as an alternative to the cooperative forms of ownership. In an air-space condominium, each unit is literally comprised of the air-space that exists inside the unit. In traditional condominiums, this is generally taken beyond the airspace and into the finished wall, ceiling and floor. The remaining portions of the building are all common area owned by either the homeowners association, or jointly by all homeowners.

In the setting of a mobile home park, an air-space condominium is a unit comprised of an air-space envelope that has the same footprint as your existing lot, extends (generally) from just below the surface grade up to a point certain the air. This is distinguishable from a planned unit development (PUD) in that the PUD unit (usually) extends to the center of the earth, and the owner has rights to all of the dirt below his or her unit.

Moving on to the Government Code Section 66428.1 exception, it would be best to start with the general requirements for condominium subdivisions. Under California law, as well as the laws of several other states, the control of division of real property is well regulated. If one seeks to develop more than four parcels of land or more than five condominium units, the developer must comply with the “Subdivision Map Act.”

The Act has evolved over many years from what was enacted to protect innocent land purchasers from obtaining title to land which had no discernable location and potentially no access or public services. This Act was intended to protect others from the many scams perpetuated in desert lands, as well as other large vacant properties prior to the enactment of this law.

At this time, in order to develop or subdivide parcels of land into what we would refer to as lots, the developer will normally have to file a tentative parcel or tract map, as well as a final map with the City or Local Jursidiction. That process can be expensive and is time consuming. The California State Legislature recognized the need to expedite resident purchase of mobile home parks so it enacted legislation which will generally remove the requirement for both tentative and potentially the final maps in conversions where the residents demonstrate overwhelming support (e.g., 80% or more).

A condominium subdivision is often situated above a single parcel of real estate. The map waiver process continued in Government Code Section 66428.1 allows:

  1. Two-thirds or more of the resident homeowners to petition, indicating their intent to purchase a mobile home park for purposes of converting it to resident ownership, and if a field survey is performed, a tentative and final map shall be waived.
  2. This absolute waiver is further conditioned on:- No health and safety issues, which require improvements in the park to resolve.

    – There are no boundary issues which require a new parcel map.

    – The existing parcels were created by a recorded parcel or final map.

    – The conversion is not creating more condominium units or interests than the park presently contains.

  3. The petition itself indicates support to convert, not necessarily to purchase the resulting subdivided condominium unit. The petition does require an estimate of the total conversion and purchase costs, as well as an estimate of the conversion and financing costs for each interest. The petition further states if two-thirds sign, the waiver must be given but warns that this eliminates provisions of the law designed to protect the consumer.
  4. Once submitted and accepted as final, a waiver request must be approved or denied in fifty days, which is also a “gift” to the residents. A typical conversion with full mapping takes significantly longer (6 mos. to several years)and is more expensive.
  5. If a tentative or parcel map is required, no offsite improvements may be required except to resolve health and safety issues. No other dedication or “in lieu” fees can be required under the process.
  6. If, in fact the applicant is required to mitigate health and safety issues, no bonds are required and the applicant is given twelve months to complete these improvements.
  7. The Code then proceeds with some unclear language as to denial under the provisions above, the tenants can still proceed, but must file a tentative and final map. It is further noted that the number of condominium units shall not determine if a map is required.
  8. Finally, the code refers to Health and Safety Code Section 50781 for the definition of resident ownership. That definition basically speaks to ownership by a resident organization (or at least ownership of a fifteen year lease) or ownership of individual interests such as the condominium.

This section and its application can be utilized by the residents themselves, the residents and a cooperating park owner, or the residents and a third party acting as a conduit for the resident purchase. This latter method allows a third party, while acting as a conduit, to purchase the park and obtain the prior owner’s real property tax basis (so long as within three years he or she transfers 50% + 1 of the park or the entire title to the residents). Obviously, if the current owner is the co-applicant/developer, this question does not arise.

Please note that the foregoing discussion regarding is limited to resident initiated conversions and will result in either a condominium conversion or a qualified cooperative.

Given all of the foregoing, the developer must still apply for and obtain a Public Report under the California Subdivided Lands Act. That Act is found in the California Business and Professions Code Section 11000, et seq. Again, this involves a subdivision involving five or more interests. There are a number of exclusions to this requirement, but they generally relate to “business properties and the leasing of apartment stores . . . and mobile home parks.” This reference to mobile home parks, however, is limited to leased spaces, not spaces for sale.

Basically, this sequence of the Business and Professions Code requires an application by the developer for a Public Report from the Department of Real Estate for the sale of five or more interests in a planned development or stock cooperative. A limited equity cooperative is exempt if it meets certain requirements. (See our discussion on this site as to Limited Equity Cooperatives).

The application for Public Report results, once approved, in a Public Report which is a form of warning for the consumer and it contains:

  1. A series of warnings as to the potential for problems and advice as to the effect of living in a common interest development.
  2. It specifically requires that sales are conditioned upon a number of elements, including required deposits for reserves for replacement, advance homeowners dues and other important elements.
  3. The actual interest to be conveyed is described as well as the management and maintenance and operational expenses. Many other variable elements are discussed and included. Things like nearby services, schools are included.

Finally, the financial elements are described at length. The escrow of funds, title insurance, tax and assessments are also covered. In particular, a buyer will be provided with an operating budget for homeowner’s dues, as well as detailed reserve analysis and budget.

The DRE approves and allows the developer to utilize the project documents as approved. These include the Covenants, Conditions and Restrictions, the Articles and Bylaws of the Homeowners Association, as well as the final map which describes each parcel to be conveyed.

This process is for the “subdivision” which includes the condominium or the full subdivision and sale of individual lots. That discussion of lot sales is also described in the “Planned Unit Development” article on this site.

Once the Public Report issues, the sales can be initiated. It is also recommended that the “Pink Report” be considered in any full subdivision as it allows taking deposits and obtaining “tentative” sales projections before the final Public Report issues. It has been used successfully in the past, but requires a separate decision based upon project needs.

Gerald R. Gibbs, President, The Gibbs Law Firm, APC

About The Gibbs Law Firm, APC

The Gibbs Law Firm, APC has represented clients in all aspects of Real Estate and Business Transactions for more than 32 years from its office in San Clemente. Gerald R. Gibbs, and his son David Gibbs have a combined 47 years experience representing mobile home park owners and residents in a variety of legal matters, specializing in the sale of parks to its residents. Mr. Gibbs is generally acknowledged as one of the pioneers in the field of mobile home park conversions and subdivision, having represented Cities and other local jurisdictions, park owners, nonprofit entities, resident groups, and having testified in court and before legislative and administrative bodies on the subject of mobile home parks and conversion. Mr. Gibbs has worked with other industry leaders on shaping the legislation governing park conversions. For more information about this transaction or about the firm, please call David L. Gibbs at (949) 492-3350.

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