This is a reprint of an earlier post, with some clarifications. Whenever I say “mobile home” in this post, I am including manufactured housing, EVEN IF IT IS PERMANENTLY ATTACHED TO THE REAL ESTATE!
A mobile home is legally considered personal property unless you complete some paperwork to have it officially considered real property. Almost nobody does that paperwork, so the mobile home remains personal property. Usually, the only time the paperwork is done is when FHA insures a loan for the mobile home and the land, and requires the paperwork. Even they don’t do it all the time.
On the other hand, owners pay ad valorem taxes on the land AND on the mobile home, all in one bill. The lender must take a mortgage on the land, and a separate security interest in the mobile home. Especially in the case of manufactured housing subdivisions, lenders don’t always know to do that.
What are the consequences? If there is a tax sale, only the land is sold, not the mobile home. The mobile home remains the property of the owner, and if the lender took a security interest, it remains on the mobile home. The lender can foreclose and repossess the mobile home, without having to redeem from the tax sale.
If the lender has only a mortgage, then it probably does not have a lien on the mobile home. That might create some problems for them, and some opportunities for you.
What happens after a tax sale? Who gets the mobile home?
The case of Greentree-AL LLC v. Dominion Resources L.L.C., 104 So.3d 177 (Ala. Civ. App. 2011) answers that question. It says the mobile home is not part of the tax sale. Only the land passes. Investors BEWARE: If you buy tax sale property with a mobile home, and rent out the mobile home, you probably won’t be entitled to keep the rents if the owner redeems! Just because the manufactured home is permanently attached to the land, does not mean it passes in the tax sale. Legally, it is still just personal property.
The issue in Greentree was a lien on the mobile home. Greentree provided the financing to purchase the mobile home. The owner did not pay her real estate taxes. St. Clair County sold the property at the annual tax auction in May 2005, and Dominion bought it. It’s not clear from the court opinion, but it seems the owner continued to live in the mobile home, and to make her mortgage payments.
Dominion received a tax deed in May of 2008, and then filed an ejectment action and had the former owner thrown off the property. That’s probably when she decided to stop making her mortgage payments. Perhaps it happened earlier.
Either way, Greentree wanted to repossess the mobile home. Dominion said it was THEIR mobile home because of the tax sale, but if Greentree wanted to redeem, it could do so for almost $37,000. That figured included $10,000 in preservation improvements (disputed by Greentree) and almost $10,000 in legal fees (also disputed by Greentree as not allowed under the statute.) Greentree sued Dominion to regain possession of the mobile home.
The trial court ruled in favor of Dominion, and said Greentree must redeem before it could get the mobile home. Greentree appealed to the Alabama Court of Civil Appeals. The higher court ruled in favor of Greentree. It said that mobile homes are personal property, and just because someone has to pay real estate taxes on them, does not convert them into real property. The court said that a tax sale transfers only the real property, not personal property. As a result, Greentree was entitled to repossess the mobile home.
The court pointed out that it was NOT making a decision about whether Greentree might need to reimburse Dominion for that part of the taxes attributable to the mobile home. It was also NOT making a decision about whether Greentree might owe Dominion some money for taking care of Greentree’s collateral in the meantime. Those decisions would have to be made by the trial court, after the appeal.
In my opinion, if you buy tax sale property with a mobile home located on it, you are not entitled to keep the rents you collect when you put a tenant in place. That rent belongs to the owner, who STILL owns the mobile home, even after the tax sale. They might be able to sue you, and ask you to pay all rents over to them. They might be able to ask for punitive damages for trespassing on their property. Depending on the loan documents, the lender might be able to make those claims against you.
Bottom line–before investing in tax sale property that contains a mobile home or manufactured housing, contact the tax appraiser to see if it was appraised and assessed as “manufactured housing.” If so, and if the county issues one of the mobile home stickers when the taxes are paid, then it’s personal property and not included in the sale. I’m not saying “Don’t invest.” I AM saying this is a very ticklish situation, and you should involve a knowledgeable attorney in your planning, as soon as possible. I’m sure there are ways to navigate through the white water, but you’ll need help doing it.
Security interests in mobile homes are governed by Ala. Code Section 32-20-42, reprinted below:
Requirements upon creation of security interest.
If an owner creates a security interest in a manufactured home:
(1) The owner shall immediately execute the application in the space provided therefor on the certificate of title, or on a separate form the department prescribes to name the lienholder on the certificate showing the name and address of the lienholder and the date of his or her security agreement, and cause the certificate, application, and the required fee to be delivered to the lienholder.
(2) The lienholder shall immediately cause the certificate, application, and required fee to be mailed or delivered to the department.
(3) Upon request of the owner or subordinate lienholder, a lienholder in possession of the certificate of title shall either mail or deliver the certificate to the subordinate lienholder for delivery to the department, or, upon receipt from the subordinate lienholder of the owner’s application and the required fee, mail or deliver them to the department with the certificate. The delivery of the certificate does not affect the rights of the first lienholder under his or her security agreement.
(4) Upon receipt of the certificate of title, application, and the required fee, the department shall either endorse on the certificate or issue a new certificate containing the name and address of the new lienholder, and mail the certificate to the first lienholder named in it.