This article is being prepared as a result of a number of recent inquiries from residents in corporate mobile home parks that we have converted to resident ownership.
The question, although phrased differently depending upon the park and the residentsâ€™ choice of language, can be easily phrased as:
â€œWhy should we spend any money converting from our (â€œcooperativeâ€) corporate park to a subdivision?â€
The question is probably better phrased as, “Why Shouldn’t You Subdivide.” In some cases, a resident-owned cooperative should not consider subdivision – these situations would include:
- Your corporation only owns the leasehold, and the lease is too short to consider a subdivision.
- Your park is very small, and the incremental cost could be significant for so few residents to share. This is usually a park with 30 or less spaces.
Other than these difficult situations, the response is generally â€œYou should do it as quickly as possibleâ€. This response is based upon a factual analysis of some myths that are spread in some parks for unknown reasons.
Myth: If we subdivide, the real property taxes we now pay will increase dramatically.
Response: Even though you have, as a corporate park, achieved the former ownerâ€™s real tax basis, the same code sections that allow that luxury are extended when a corporate park is subdivided. (see CA Revenue and Taxation Code Sections 62.1, 62.2)
When the original resident sells his or her interest in the corporation or in a subdivided space/lot, the taxes will increase under Proposition 13, but not until that sale is completed.
Myth: We can always obtain financing for memberships and homes.
Response: There is only one lender that we are aware of at this point in time, that does finance the membership and the home. That is good, but the loan rates are much more expensive than a subdivided lot and home.
In many parks that still remain as a corporate entity, the financing is virtually non-existent or available from time to time, but then it is normally a financing of the home to cover the cost to purchase home and membership.
These loans are for personal property, and carry rates substantially the same as those found in rental parks. In addition, the length of the loan and amortization schedule is generally much shorter than the lot and home loans.
What generally occurs is that the buyer is able or willing to pay all costs, and requires little or no financing. This may play in Five-Star parks, but most parks are not Five-Star and, if the park is all ages, the cash buyers are few.
Myth: If you are required to sell the land and the home, no one will want to buy from you.
Response: In the corporate parks, the membership must also be sold with the home, and unless your rationale is that the membership is worth less than the lot value, the effect of sales will be the same.
Myth: We did a corporate park because we could not get individual loans.
Response: Generally, that statement refers to the fact that a blanket loan is generally available for a quick purchase, but it also requires thirty per cent (30%) or more in down payment from someone (i.e., members). Also, individual loans are available.
Myth: In a subdivision, I cannot qualify for a loan as I am too old.
Response: Banks donâ€™t look at your age, but rather the value of the security and your ability to repay the loan. Also, the down payment required for individual loans is often present in the member home and some insured loans require five to three per cent (5 to 3%) down payment. Although that makes an insured loan more costly than the usual ten to twenty per cent (10 to 20%) down, the loans are available with a subdivision.
Facts About Converted Parks:
- The real property taxes do not go up upon conversion to individual lots.
- The financing for lot and home is available, and it is available at attractive rates.
- Most, if not all, persons who own a home in a corporate mobilehome park, and who have adequate credit and the ability to repay a loan, can get one at much more attractive rates than for any corporate member loans available. The lot loans are generally amortized over 25 â€“ 30 years, and have rates which are much more comparable to conventional home loans.
- If a park converts, there may be some who really cannot qualify for a loan with any institution. In this case, there are state and local programs that provide loans or down payment assistance.
- The sale of a lot and home in a subdivided park is much easier in that the new owner can finance the whole purchase with one entity, and that financing is treated as a single-family residence, not biased by the mobile home personal property financing as in corporate or rental parks.
- The refinance of a home and lot in a subdivided park will be at much more attractive rate and terms than the same home in a corporate or rental park.
- The homeownersâ€™ association in a subdivided park is held to a much higher standard of operation. The lot owners are afforded additional protection under state law, and the rules of operation for the homeownersâ€™ association Board of Directors are detailed in the statute as are the lot ownerâ€™s rights and obligations.
- When subdivided, there are recorded â€œProject Documentsâ€ which clearly spell out the rights and obligations of the lot owners and the homeownersâ€™ association. Many corporate Boards of Directors choose not to follow the State Code and, short of going to Court, it is difficult to enforce the obligations.
- None of the lot owners have to be â€œtenantsâ€ any longer. There are no leases, and no lease payment.
- The value of each memberâ€™s lot is set at the beginning and does not, from that time forward, have to be controlled at the equality required in the initial price of a membership.
- Upon conversion, a member will turn his or her membership back to the corporation, and receive a deed for his or her lot. At that time, the lot prices will differ and those with larger, view lots, or those close to the amenities will have to pay for the difference between the real lot value and equal membership values.In the same vein, someone who paid $100,000.00 for his or her membership has a small or inferior lotÂ will pay less than the average paid for memberships.Everyone will share equally in the cost of a subdivision.
- When subdivided, the loan on your home and lot will enable you to claim a deduction for interest paid, when it is not generally true in a membership park.
- The real property tax paid by a lot owner is also deductible as in a conventional home.
- For those of a certain age, the real property tax from their old residence may be transferable to the new home and lot in a mobilehome park. This would result in a savings for the second buyer of the lot in the park.
- A subdivided park where you own the lot and home does allow persons of a certain age, to obtain a reverse mortgage on the lot and home to provide income.
- There may be some need to consider a subdivision sooner rather than later as the present state code allows residents, as developers, to have certain advantages in a conversion, which could be taken away by the legislation that was vetoed last year by the Governor. Advocates of those statutory changes pledge to introduce that legislation again this year and, if not passed, to continue to press for changes which would allow local government to dictate improvements or changes in a park to be subdivided. It would also take away the â€œbuilt inâ€ rent control for non-purchasers who are of limited income.
Now is the time to get a map vested so that the state legislators cannot take away the conversion wrights without interference by the City or County in which a park is located.
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.