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Subdividing Manufactured Housing Communities to Resident Ownership

What is "Conversion"?
A conversion of a manufactured housing community to resident ownership can entail subdividing the community and selling it to the individual residents on a lot-by-lot basis thereby creating a resident owned park. This form of conversion differs from a cooperative owned park. When the community subdivides, it becomes a condominium park and is governed under the Davis-Sterling Common Interest Development Act (Civil Code Section 1350 et. seq.) Homeowners who decide not to purchase will continue to have the full protections of the Mobilehome Residency Law (MRL)(Civil Code 798 et. seq.) and State imposed rent protections (Government Code Section 66427.5 (f)) rather than local rent control. The residents that purchase their lots have the full protection of the Davis-Sterling Act and MRL protection under Civil Code Sections 799 et. seq., that are specific to subdivisions, cooperatives and condominiums and resident owned parks.

Lower Income Residents are Protected
It is very important to understand that current lower income residents in a manufactured housing community who choose to remain renters are protected financially when a park owner chooses to sell the individual lots to the residents. Lower income limits are defined in Section 50079.5 of the Health and Safety Code and are updated annually by the California Department of Housing and Community Development. If a current resident qualifies as lower income then the resident will be governed by State regulations and the rent cannot be increased by more than the average increase over the four preceding years or the current period Consumer Price Index, which ever is less. For residents that are not lower income, the monthly rent may gradually increase to market level over a four-year period.

For instance in 2008, a family of four living in San Diego County was considered lower income if the household annually earned less than $63,200. Another point to note is that the lower income limits in this instance only apply to monthly income and not assets. Therefore a retired person who has large amount of savings from selling a previous home can still be eligible as lower income as long as their annual income falls below the guidelines.

Conversion Process
When an owner (subdivider) of a mobilehome community desires to sell the subdivided land to the residents, they must file with the local agency a tentative or parcel map for a subdivision to be created.

After a parkowner/subdivider secures local approval, they apply to the California Department of Real Estate (DRE) for a public report consisting of a notice of intention and a completed questionnaire on a form prepared by the department. (Business and Professions Code 11010)

However, prior to making an application to DRE the subdivider must disclose in writing to homeowners and residents of the park the tentative price of the subdivided interest proposed to be sold. (Business and Professions Code 11010.9)

As the California legislative system has evolved, a condominium can be created for virtually any type of real estate interest or structure. Formerly, the condominium statutes stated that the separate interest portion of the condominium had to be within a building. This was eliminated with the adoption of the Davis-Sterling Common Interest Development Act (Civ. Code, section 1350 et seq.).

Mobilehome Park Becomes Condominium Project, Continued
After the subdivision application is approved at the local level, a detailed condominium plan is prepared by a project engineer. The plan details the specific dimensions and boundaries for each individual lot as well as all common areas. The condo plan is the main documentation under which the condo units are offered for sale. This document is approved by the DRE and subsequently recorded. After the public report is issued by the DRE, the mobilehome park becomes a condominium project and sales may begin. The condominium project now must abide by the statutes in the Davis-Sterling Act, the body of law which regulates the operation and fiduciary requirements of a condominium project.

Once approved by the DRE, each resident has an opportunity to purchase an undivided interest in the park and all common areas along with the lot on which their home is situated. This interest is offered to each resident as a condominium interest, comprised of the condominium unit, and exclusive use easement to the common area [and under the condominium unit], a percentage tenant in common ownership to the common areas and membership in a Home Owner's Association ("HOA").

Financing for Lower Income Residents
A State funded program exists through the California Dept. of Housing and Community Development Division of Financial Assistance called the Mobilehome Park Resident Ownership Program ("MPROP"). MPROP was established to finance the preservation of affordable homes by conversion to resident ownership and is controlled by CA Health & Safety Code sections 50780-50786.5.

This program is available to park residents who wish to purchase their lot and qualify as a Lower-Income Household. The MPROP program offers long-term loans at 3% simple annual interest, to low-income residents of a mobilehome park that has been converted, to ensure housing affordability when the resident buys a condo unit in the park.

The loan does not cover the entire purchase price, but is often paired with a conventional loan and provides, on a sliding scale, an amount sufficient to secure a monthly payment that is suitable for the individual resident based on their income, down payment, etc. The total monthly payment generally does not exceed 30% of the resident's monthly income.

The program exists solely to provide lower-income residents the opportunity to own an interest in the park in which they live and to secure and maintain affordable housing through the conversion of existing rental mobilehome parks to resident owned parks.

Financing for Non-Low Income Residents
After subdividing the land, homeowners and residents will have more realistic options to finance their homes than before. Lending institutions consider mobilehomes on leased land to be personal property or "chattel". Chattel financing is short term with higher interest rates.

Once subdivided, the home and the subdivided property can be financed with a conventional home loan. Home loan rates are historically lower than chattel financing and institutions offer many decades to pay because of the value and security of the land.

Aside from conventional financing, many residents may qualify for First Time Home Buyer loans, Cal Vet loans, or other local programs such as Redevelopment Agency funding. Additionally, many park owners offer seller financing.

Benefits to Residents
Owning real property helps individuals and families accumulate wealth for the future while enjoying the benefits of real property that they have the right to use, improve and sell. The purchase becomes a long-term investment. Home sites in a subdivided mobilehome community are typically much less costly than single-family homes in the surrounding area. Manufactured housing communities can provide more amenities and security as a close-knit community. Residents in subdivided parks have realized significant resale profits after the mobilehome park subdivides.

It is easier for residents to secure their future by purchasing their individual lot than trying to organize all the residents in the park to attempt the purchase of an entire park. Another advantage to a subdivided purchase is that the resident actually owns a deeded property, whereas, with a typical purchase by a 501(c) (3), the non-profit owns the community (and receives the appreciation of the property) and the residents still pay rent to a corporate entity.

Benefits to the Park Owner
Many park owners are looking for a long-term exit strategy and/or a method to selling their asset that will enable them to realize the real estate value of their property. Conversion is a process that allows the park owner to profit from his investment while providing the residents a method of owning their community while building real estate equity.

 

 

 

 

 

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