Mobile & Module Homes

May 3

MANUFACTURED HOUSING UPDATE

1.  Mobile, Modular or Manufactured. What’s the Difference?

Simply put, these are dwellings that are built in a factory and transported to a building site either on their own chassis or on a flat bed truck. They are built to the specifications of the National Manufactured Housing Construction and Safety Code promulgated by the U.S. Department of Housing and Urban Development. Modular homes are built in sections in a factory and assembled upon arrival at the building site. Some are delivered by truck and placed on a foundation by use of a crane, while some have steel frames with wheels and are towed to the lot.

It can be very difficult to determine the true nature of a manufactured structure. What constitutes a mobile home under restrictive covenants prohibiting their use has been the subject of much litigation.

Prior to the 1998 decision of the Court of Appeals in Briggs, et al. v. Rankin, 127 N.C. App. 477, 491 S.E.2d 234 (1997) aff’d 348 N.C. 686, 500 S.E.2d 663 (1998), what qualified as a mobile home for the interpretation of restrictive covenants focused on the mobility of the structure.

In Starr v. Thompson, 96 N.C.App. 369, 385 S.E.2d 535 (1989), a factory built modular home was held to be a mobile home within the prohibition of restrictive covenants prohibiting mobile homes despite the fact that the axles, wheels and tongues had been removed after the home was placed on the land. 

Forest Oaks Homeowners’ Ass’n of Lincoln Co. v. Isenhour, 102 N.C.App. 322, 401 S.E.2d 860 (1991) distinguished Starr on the basis that in that case, the covenants permitted modular homes while prohibiting mobile homes.

In Young v. Lomax, 122 N.C.App. 385, 470 S.E.2d 80 (1996), the structure in question, was found to be a mobile home prohibited by the applicable restrictive covenants because it was designed for transport and despite the fact that it had been placed on a permanent foundation.

Angel v. Truitt, 108 N.C.App. 679, 424 S.E.2d 660 (1993), however, found the unit under consideration was found not to be a mobile home since it was placed on a foundation and could only be moved in the manner in which a house built on site could be moved.

Briggs, et al. v. Rankin, 127 N.C. App. 477, 491 S.E.2d 234 (1997) aff’d 348 N.C. 686, 500 S.E.2d 663 (1998), changed all this. The restrictive covenants being considered in Briggs provided that:

 â€œNo structure of a temporary character, trailer … or any other outbuilding shall be inhabited, located or used upon any building … lot at any time as a residence, either temporarily or permanently.”

     The Court of Appeals listed several factors to be used to differentiate “modular homes” from “trailers” or “mobile homes”.

 

a.              How the unit was moved to the lot.

b.              Whether the unit must comply with the N.C. Regulations for Manufactured / Mobile Homes or with applicable building codes.

c.              Whether the unit is attached to a permanent foundation.

d.              Whether the completed unit can be easily moved or must be moved like a site built home.

e.              Whether there is a title to the home or title is conveyed by deed.

 

No one single factor was found to be determinative although item “a” was less important than the others. The Court of Appeals found that the structure in Briggs did not violate the restrictive covenants observing that the unit was attached to a permanent foundation, a deck and covered porch were attached and a 3 car garage built on a permanent foundation and connected to the unit by a breezeway. A building permit had been obtained prior to installation and construction complied with the North Carolina State Building Code. No title was ever issued and since the home was on a permanent foundation, it could only be moved in the same way as a site built home. The fact that the home was moved to the site on a steel frame with wheels , tongue and axles did not change the result.

 

     There have been no published decisions since Briggs, although in Wilson v. Abbott (North Carolina Lawyers Weekly No. 9-16-0983) the Court of Appeals reversed the lower court’s order of partial summary judgment stating that even though a modular home sat on a permanent foundation and was classified by the county as real property for tax purposes, a ruling that it was not a mobile home as a matter of law was erroneous and there was a triable issue as to whether the dwelling violated subdivision restrictions against “house trailers”.

 

2. Is it Real or Personal Property?

 

Every manufactured home is treated initially as a motor vehicle. At the time the home is transferred from the manufacturer to a retailer, ownership is evidenced by a manufacturer’s certificate of origin.

 

When the home is sold by the retailer, a Certificate of Title is requested from the Division of Motor Vehicles. When the home is resold, the Certificate of Title is assigned to the new purchaser and a new Certificate of Title issued.

 

Many homes are sold and financed as personal property, just like motor vehicles. Ownership of these structures is evidenced by a Certificate of Title and any lien or security interest is evidenced by a notation on the face of the title.  N.C. Gen.Stat. 20-58 provides that this is the only way to secure a lien against a motor vehicle.  Liens are perfected by possession of the title by the lienholder, not by the filing of a UCC financing statement. A Certificate of Origin cannot be used to secure a lien.  The only exception is the dealer’s floor plan financier’s lien on inventory which will be perfected by possession of the Certificates of Origin for the homes on the lot and by the appropriate UCC filings. N.C.Gen.Stat. 20-58.8(b).

 

North Carolina law requires that if a structure has wheels and travels on the roads of this State it must have a Motor Vehicle Title or a Certificate Of Origin. N.C.Gen.Stat. 65.20-4.01(23), and King Homes, Inc. v. Bryson, 159 S.E.2d 329, 273 N.C. 84 (1968),

 

There are many reasons why one would want to have a manufactured home considered real property. Interest rates and financing terms are often more favorable where the homes are sold and financed as real estate. Frequently real property tax rates are lower than those for personal property. Insurance is also more readily available and affordable for homes considered real property.

 

How you convert a manufactured home from personal to real property, thereby subjecting it to the lien of a Deed of Trust rather than requiring perfection of the lien on the title to the home is the major challenge facing the closing attorney in these transactions.

 

The primary consideration in determining whether the home you are being asked to close is real or personal property is whether there is a Motor Vehicle Title or Certificate of Origin for the structure. You know that if you are dealing with a new home being purchased from a retailer you are dealing with personal property and a Motor Vehicle Title.  Where you are asked to close a transaction involving an existing home, the answer may be much less clear.

 

To convert a home from personal to real property, the following conditions must be met:

 

  1. Title to the land and the home must be held the same way.
  2. The home must be place on a permanent foundation, pursuant to applicable building codes.
  3. Any wheels, axles or trailer hitches must be removed.
  4. Permanent utility connections must be made.
  5. A Certificate of Occupancy must be issued by the appropriate county authority.
  6. The owner must intend that the home remain real estate.
  7. The home should be taxed as real property. (Failure here is not fatal so long as the other conditions as met. It can however, provide additional proof of the owner’s intent to treat the home as real property.
  8. The Motor Vehicle Title, if one was issued, must be cancelled.

 

Issuance of an ALTA 7 endorsement to the lender’s title insurance policy can confirm that the “land” insured includes the manufactured structure located thereon.

 

  Conditions which must be met for the issuance of this endorsement include the closing attorney certifying that the local taxing authority will tax the home as real not personal property, that there are no liens on the home and that the certificate of title for an existing home has been cancelled or that if the unit is new and no certificate of title has been issued, that the attorney will hold the Certificate of Origin in his or her file to insure that no certificate of title will be inadvertantly issued. In addition, the owner must certify his intent that the home be considered a fixture and part of the real estate.

 

2.  Closing transactions involving manufactured housing.

 

A.              Purchase of a new home from a retailer

 

Where a manufactured home is new and placed directly on a lot by the manufacturer or retailer, there will likely be only a Certificate of Origin, not a Motor Vehicle Title. It is highly recommended that where the new owner intends to treat the home as real estate, that a MVT be issued in the new owners name and then cancelled. Once this is accomplished, the home and land can be transferred together by deed and any debt can be secured by a Deed of Trust.

 

If the owner chooses not to issue and cancel a title, the Certificate of Origin must be destroyed or retained by the closing attorney or lender to prevent the subsequent issuance of a title. One compelling reason to issue and cancel a title is to protect the purchaser and lender from the lien of the dealer’s floor plan financier.  People’s Savings & Loan Assoc. v. Citicorp Acceptance Co., Inc., 87 S.E.2d 251, 253, 103 N.C.App. 762, 766 (1991) and N.C. Gen.Stat. 25-9-302(3)(b).

 

Some lenders would have you, instead of de-titling the home, place a lien on the title and also secure the land and the home with a Deed of Trust. Some would require the retention of the Certificate of Origin so that the home when permanently attached to the real estate serves as security for the Deed of Trust. Be sure to check your closing instructions carefully and if there is any ambiguity or uncertainty, consult the lender prior to the closing.

 

     Some manufactured housing retailers prefer to purchase lots (generally paying cash), place the home on the lot and then sell the completed house and land to the ultimate buyer. Some prefer to have the ultimate purchaser buy the land using a construction/perm combined loan to pay for the home and the land. Be sure you understand the transaction you are being asked to close.

 

B.              Purchase of an existing home.

 

When you are asked to close the purchase of an existing home, you are not always aware that you are dealing with a manufactured home and the determination of whether there is a title or not becomes even more important. As closing attorney, you need to routinely inquire as to the type of home on the property you are closing.

 

The survey and appraisal can give you clues as can the lender’s request for an ALTA 7 endorsement. Unfortunately, you may not see these until shortly before closing, if at all. If you have the serial number for the home, you can call the DMV and they will tell you if there is a title and if there are any liens.

 

Another clue can come from your title work. If you have personal property taxes on your tax bill or if you do not have a Deed of Trust on the land or if the Deed of Trust on the land is for an amount that is low compared to the purchase price of the house and land, you should ask your seller if there is separate financing on the home.

 

If the home is titled, you will need to determine if the title is to be cancelled or if it will be financed as personal property. Occasionally, you will be asked to leave the title to the home intact and secure the lender with a lien on the title. More often than not, all parties will want the title cancelled. If the home is not on a permanent foundation, you may find that the sellers are taking steps necessary to bring it into compliance with FHA guidelines. There may be additional inspections required by the lender which should be paid for at closing.

 

Regardless, if there is separate payoff on the home, you will have to contact that lender and obtain a payoff. Put in your payoff letter, instructions to send the title to the home with their lien released to you for transfer to the buyers. You will need to have the buyers at closing sign a Title Application (and, if they want the title cancelled, a Manufactured Housing Affidavit). The sellers will need to sign Powers of Attorney permitting you to endorse the title over to the buyers once it comes back from the lender. You will need to collect a $35 transfer fee to the DMV from the buyer at closing. When you get the title, complete the house specific information on the Title Application, Manufactured Housing Affidavit (if applicable) and the Powers of Attorney, and send them with a cover letter and the $35 check to the DMV at the following address:

 

Registration Section

Division of Motor Vehicles

1100 New Bern Avenue

Raleigh, NC  27697

1-919-733-3025

 

 If you want the title cancelled include the completed Manufactured Housing Affidavit and request in your letter that the title be cancelled after it is transferred and that you be notified when that action is completed. Eventually, you will receive a letter from the DMV advising you that the title has been cancelled. Send a copy of this letter to your client.

 

If the title is not to be cancelled, you will need to be certain to complete the lien information on the Title Application and in your cover letter request that the title be transferred to the buyer subject to the lien noted on the application. The DMV will then transfer the title subject to the lien and forward it to the lender.

 

C.              Refinance of an existing home

 

Occasionally, you will be asked to refinance an existing home which is personal property to be converted to real property in the course of your transaction.  You will need to be certain that the title to the home and the land are the same and that any liens on the title are paid and released. Include in your payoff letter language requesting that the title with the lien released be returned to you. At closing you will need the borrowers to sign a Manufactured Housing Affidavit which you will send to DMV with the title and a cover letter requesting that the title be cancelled and that you be notified when that action is completed.

 

 

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