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Titling Manufactured Homes: Opting In vs. Opting Out
By Lauren Williams on 09/28/2011 @ 03:00 PM
More than 17 million people in the U.S. live in 6.8 million manufactured homes. Nearly half of those homes—2.9 million—are placed in land-lease manufactured home communities. We estimate that those homes, and possibly more, are titled as personal property if located in states that require the homeowner own the land beneath their home for it to be titled as real estate. Despite the fact that nearly all manufactured homes are never actually moved after installation, they are often titled as personal property rather than real property. A home’s classification as real or personal property significantly affects its asset-building potential, largely due to tax and financing implications. An alternative system that automatically titles manufactured homes as real estate could immediately enable owners of manufactured homes to enjoy the same rights as owners of site-built homes, take advantage of consumer protections for homeowners and receive access to better financing options.
Titling Manufactured Homes as Personal Property Puts Homeowners at a Disadvantage
Titling manufactured homes as personal property prevents owners from obtaining mainstream mortgage financing and from receiving the same consumer protections and opportunity to build wealth enjoyed by owners of site-built homes. In addition, when a home is classified as personal property, the homeowner may have difficulty reselling it because many lenders are not willing to finance a “used” manufactured home, which—because of personal property titling—is essentially a depreciating asset. When manufactured homes are titled as real property, homeowners receive better protections for their heirs; enjoy more equitable safeguards upon default; qualify for homestead exemptions; become subject to equitable taxation relative to site-built homeowners; and obtain access to conventional mortgage products, a more vibrant resale market, real estate agents, appraisers and title insurance agents.
Drafting a Uniform Manufactured Housing Titling Law
Since 2009, I’M HOME partners including NCLC and MHOAA have been involved in the Uniform Law Commission (ULC) process to draft model state legislation regarding titling of manufactured homes—this draft act is called the “Manufactured Housing Act.” The ULC provides states with non-partisan, well-conceived and well-drafted legislation that bring clarity and stability to critical areas of state statutory law. Typically, a committee studies a subject to recommend whether drafting should be undertaken and then drafts a specific uniform or model law for consideration by the full commission—the “Manufactured Housing Act” has been both researched and drafted. On July 11, the ULC convened for the first formal presentation of the draft bill on manufactured home titling to the larger commission.
Opting in vs. Opting out
While there are many nuanced legal considerations that must be addressed within a manufactured housing titling law, one core mechanism is the manner by which a home’s title is determined. The existing legal systems in most states require that owners of manufactured homes opt-in in order to title their homes as real property and enjoy the same rights, protections and access to financing as other homeowners. CFED, our partners and the drafting committee of the Uniform Law Commission agree: the system that would provide the optimal outcomes for owners of manufactured homes—in terms of ease, clarity, immediate consumer protection and access to asset building through homeownership—is the opt-out system. Behavioral economists like Richard Thaler have brought the concept of “opt-in vs. opt-out” to the forefront through studies on organ donation. Thaler posits that one effective way to reduce the deficit between organs donated versus organs needed for transplant is to implement a system where citizens are presumed to be consenting donors unless they act to register their unwillingness. In most American states, the organ donation system is the opposite—donors must register to indicate consent. According to Thaler, many Americans say they want to be organ donors, they just never get around to acting on those intentions. Put simply, it’s a hassle.
Similarly, converting a manufactured home title from personal to real property is a hassle too. About three-quarters of the states have statutes that set forth a procedure to convert manufactured homes from personal property to real property; however, the process is often irrational, inconsistent and sometimes poorly framed. Many states do not permit homes on leased land to be converted, and those that do often require the permission of the landowner, particular types of financing and long-term lease terms. Other state statutes are unclear about the implications of conversion, often specifying that the home will be taxed as real property without clarifying whether the home is subject to treatment as real property for other purposes, like foreclosure. Many conversion laws also require homes to meet onerous foundation requirements or set procedures that are simply too complex for homeowners to handle on their own, requiring them to hire an attorney. The lack of uniformity in state laws also increases transaction costs for homeowners and prevents many from completing a title conversion and enjoying the increased security and asset-building potential of owning real property.
Opt-out policies for organ donation minimize the hassle of registering; an automatic, opt-out system for titling manufactured homes as real property would do the same for homeowners. In countries with opt-out organ donation policies—like Austria—consent rates are close to 100%, while in Germany’s opt-in system only 12% give consent. We estimate that half of the 6.8 million manufactured homes in the United States are not titled as real property, even though having those homes titled as real property would most likely be in the best interest of the homeowner.
Beyond helping manufactured homeowners, the treatment of manufactured homes as real estate, even those on leased land, is appropriate and consistent with other law: Many commercial buildings are not owned by the same entity that owns the land and the buildings are generally classified as real property. In parts of the country homes are often built on leased land and classified as real property. Similarly, community land trust homes sit on land leased, not owned, by the homeowner, and often homes in such situations are classified as real property.
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