A New Servicing Dilemma

Mobile homes by specific definition have always presented a challenge in the tax service industry due to the fact they are, well, mobile. Webster’s definition of a mobile home is “a dwelling structure built on a steel chassis and fitted with wheels that are intended to be hauled to a usually permanent site. Sometimes they are referred to as manufactured homes. They are different from modular homes, which are pre-cut but assemble on a particular site.

Mobile or manufactured homes are usually purchased very similarly to how you would purchase an automobile, boat or camper. A mobile home dealer has inventory on a lot, a buyer makes a selection, and the mobile home is then moved to the location where it will reside, either in a mobile home park or on a private piece of property. If placed on personal property, it can still be taxed as real property if permanently attached (home/land loan) or as personal property (chattel loan).

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Fannie Mae and Freddie Mac have announced that they are going to support the market for chattel loans on manufactured housing. This is happening because according to the U.S. Census, the average price of a manufactured house today is about $70,000 compared with $350,000 for a site-built home.  Fannie Mae and Freddie Mac’s principle mission remains that of meeting the housing finance needs of low- and moderate-income households. Their big question is how to provide financing for manufactured housing without incurring excessive risk.

There tends to be high loss rates because value tends to decline over time, especially if the collateral does not include the land which accounts for a large part of the price appreciation.  Also, if on rented land the owner is at the mercy of the landowner that may decide to raise rents or sell the property for other uses, this then requires the manufactured home to be moved.  The third point in impact value of manufactured home is that they tend to be vulnerable to natural disasters.  In 1992 Hurricane Andrew destroyed almost all the manufactured homes in its path, this compares to about one third of the houses built on site. Despite the three points that create increased high loss rates, manufactured housing can support the shortage of affordable housing. Federal Housing Finance Agency (FHFA) indicated that the percentage of new manufactured homes titled as chattel increased from 67 percent in 2009 to 80 percent in 2015.

This is the first hurdle for effectively servicing taxes on mobile homes, determining where the mobile home will be located. Usually when the original mortgage is secured a location is established. However, while the towing hitch, axles and wheels can be removed and the mobile home connected to utilities and placed on a foundation, the utilities can be disconnected, hitch, axles and wheels are reinstalled and that mobile home can be moved to another location. Sometimes the proper paperwork is registered and a moving permit is secured, other times that is not the case and the mobile home hits the road and finding its new location can be very challenging for lenders and servicers.

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Taxing jurisdictions throughout the United States have varying rules/regulations pertaining to mobile homes so it is very important to be knowledgeable of the ones that pertain to where your mobile home is going to be located.
If you are successful in accomplishing the first hurdle of determining the location, the second challenge is to determine how the mobile home is assessed and taxed. Is it carried by the tax jurisdiction as a personal property, treated as real property or licensed by a motor vehicle office?

Does your obligation specify only the mobile home or do you have a land/home loan? Ownership interests in the mobile home and land must be the same to be assessed for ad valorem (assessed value) tax purposes. If the mobile home is placed on non-borrower owned land, it would not be subject to assessment as real property. While some jurisdictions will tax the mobile home on the same bill as the land if the owner of land and mobile home are the same; some jurisdictions make it an option if the owner wants to have them taxed separately.

As an example of personal property assessment, most mobile homes in New York are placed in mobile home parks, the assumption is that they are on rented/leased land. This assumption could result in taxes not being paid if the homeowner applies/qualifies for an exemption beyond the basic STAR exemption (exemption from school property taxes for owner-occupied, primary residences), then the mobile home can be taxed separately from the mobile home park and the homeowner is responsible for a real property tax bill. Some servicing companies require a “Mobile Home Park Acceptance Letter” for New York. This document indicates whether the park manager or the tenant is responsible for their mobile home taxes.

If you have a chattel loan; you probably do not want to pay on the land unless the mobile home is assessed with the land. However because of taxation laws, you may be forced to escrow for the land as well if that is the way the mobile home is assessed according to the taxing jurisdiction and their requirements. In many cases, the payment of taxes for a mobile home that is considered personal property will have both a collection period different than what real property will have and also the same for the assessment period. Depending on the timing of the loan; the mobile home may not show on the assessment books for a number of months.

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Texas will carry the mobile home together with the land (assessed and taxes as real property) if a statement of ownership and location for the home reflects the owner as electing to treat the mobile home as real property and a certified copy of the statement of ownership and location has been filed in the real property records in the county which the mobile home is located in. Some jurisdictions taxation of the mobile home with the land only applies if the title has been purged/eliminated or a “Certificate of Permanent location” has been filed, otherwise they are taxed separately.

In Florida, if the manufactured home is placed in a mobile home park, it is assessed through the DMV. If the homeowner is purchasing a plot of land in the mobile home park, it will be assessed with the land as real property. But in the first year of placement, until the first assessment date, the mobile home will be taxed through the DMV registration regardless of whether or not it is going on the borrower owned land.

To further complicate the subject are the nuances of how each scenario is assessed. Assessment timing can also vary by state. It is critical that the servicer is aware when a mobile home will be on the assessment roll for the upcoming tax cycle. There are some states such as Pennsylvania, Louisiana, Georgia and Mississippi that can assess a mobile home at any time. This can result in an interim tax bill being sent to the mobile home owners within 90 days of placement. If the mobile home is treated as real property (considered an improvement on the land), the taxation piece is very simple, the taxes fall in line with the normal collection period for other real properties you are servicing.

In some areas the available exemptions for a mobile taxed as real property are the same as a conventional home. Other jurisdictions will levy the tax based on the age and square footage of the mobile home. In many states for a chattel loan the VIN/serial number is the way you will identify the correct mobile home, California and Texas use their own identifying factors to track the mobile home, California uses a decal and Texas uses a label, but both are tied to the VIN/serial number. These numbers are just like the VIN of a car, they are unique to the mobile home and the most important piece of information to verify that you have the correct collateral. A mobile home loan should contain that VIN/serial number. However, there are some states that do not use the VIN/serial number to track the mobile homes (Tennessee, Arkansas and Kentucky are examples), in looking for the mobile homes in those states, you will need to match the year, make and description as closely as possible.

In Illinois, mobile homes are billed under a “Mobile Home Privilege Tax.” The computation of mobile home tax also can differ from real estate tax. Tax bills can be issued to mobile home owners based on the age and square footage of the mobile home. This can even include values for appendages such as carports or porches.

Most jurisdictions do not have mobile home information on their websites or make it easily accessible to lenders or servicers. Determining all of the above usually requires contact with specific assessment and taxing departments across the country to ensure you obtain accurate information for the loan. California does have their HCD website which allows you to see the decal number/registration status for mobile homes in that state, also Texas TDHCA website will allow you to search for mobile homes titled in that state.

Mobile homes present a number of unique challenges in comparison to a stick built home. Knowing the location of your mobile home and the taxing jurisdictions procedures/requirements will go a long way in successfully servicing your mobile home loans as well as reducing risk of property loss.

About The Author

Fred R. Holstein

Fred R. Holstein is Vice President and National Tax Setup Manager for LERETA LLC, a provider of tax and flood services to the Mortgage Industry. He can be reached at fholstein@lereta.com. Since 1986, LERETA has provided the mortgage and insurance industries the fastest, most accurate and complete access to property tax data and flood hazard status information across the U.S. LERETA is committed to giving customers extraordinary service and cost-effective property tax and flood solutions. LERETA’s services are designed to increase efficiency, reduce penalties and liabilities and improve processes for mortgage originators and servicers.