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Not paying fee could cause problems for mobile home owner

Dear Benny: I own a manufactured home and recently paid off my chattel loan.

However, in order to clear the lien, our secretary of state requires that I pay an additional cost. The bank stated we might not have to do this.

Will this impact selling the home in the near future? –Phil

Dear Phil: That’s a good question, and I first have to explain what a chattel loan is.

Oversimplified, it means “personal property,” whether that be a car, a refrigerator or a mobile home. It is something that is not real estate. A mobile home can be moved from place to place.

When you get a loan on a house, you give a deed of trust — also called a mortgage — to your lender, who records that document on the land records in the jurisdiction where the property is located. Recording puts the world on notice that there is a lien — a cloud — on your title.

However, when you get a loan for a mobile home, technically there is no mortgage document to be recorded. But the lender still wants to make sure that if you are in default, there is security against your property.

Accordingly, many years ago, a system of recording such personal property was developed and was called “chattel loans.” This recording system put the world on notice of your financial obligation to the lender.

In recent years, most states, except Louisiana, have enacted the Uniform Commercial Code, and chattel loans are now recorded in the UCC filing in each state.

Since I suspect that your mobile home loan was, in fact, recorded in the UCC filing, you have to have it released from the records. Otherwise, when you go to sell your home, that obligation will show up in a search.

Accordingly, I strongly suggest that you pay the nominal fee to the secretary of state and have that loan released from the records.

Dear Benny: You previously mentioned in one of your articles that owners who are bound by no-rent clauses in their homeowners association documents can sell with a rent-to-own agreement. How can I find out more about such options?

Units in our condo building have not been selling. Due to the economy, some of our homeowners find themselves in a bind. They need to sell because they have been forced into early retirement or now have jobs with very long commutes.

I’m concerned that some of these homeowners may walk away from their obligations if they can’t rent and can’t find a buyer who qualifies for a traditional mortgage. Changing our governing documents is not a viable option at this point. –Janice

Dear Janice: I am sure that many community association attorneys will disagree with me, but I am convinced that in economic times such as we are still in, boards of directors should be flexible and not vigorously enforce any bylaw restrictions on rentals.

My argument is that if a person enters into a contract where they rent with an option to purchase, this is not the same as having just a plain rental situation. The tenant has what is known as an “equitable interest” in the condominium unit, which gives him/her greater rights and responsibilities than if this were just a simple tenant.

Obviously, the best solution is to get your legal documents amended so as to permit rentals for hardship situations, such as losing a job or getting transferred far away from the condo unit. I recognize, however, that amending community association documents is difficult if not impossible, since it usually takes a supermajority vote of all of the members.

There is no easy answer to this dilemma and it is a nationwide issue. Boards of directors have to have a heart. Some of them do.

Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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