Mobile Home Investing: Beware of Hidden Liens
Investors that do not learn from their past mistakes are doomed to repeat them. I recently helped a newer investor (Tim) close on a slam-dunk mobile home deal inside of a preexisting family mobile home park in his town. The negotiation and acquisition went as smoothly as planned. It was not until after the closing that a previous lien holder (Ron) came out from the woodwork demanding Tim satisfy the lien that the current seller (Gail) promised to pay him back in 2005.
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Let’s dissect this problem together:
Gail ‘the current seller’ was 2 months behind on her lot rent to the park where she lived when she contacted Tim to purchase her mobile home. Typically when sellers are behind on lot/pad rent they want to sell their property in a hurry.
Once Tim saw and walked through Gail’s property, he made an offer to purchase the home. After negotiations, Gail agreed to sell Tim her property for only $2,000 in as-is condition. Gail had both titles in her hand (one title for each half of the double-wide home) to prove she was indeed the owner and that the home was ‘free and clear’ of any liens that would have to be repaid before the title was transferred into Tim’s corporate name. “What a fantastic deal!” Tim thought.
The definition of a lien holder is a person or institution holding a mortgage or having a legal claim on the specific property of another person as security for a debt. Most states typically have a ‘Lien Holders’ section on every mobile home title that lists every lien holder on record for that home. If there are names in this ‘Lien Holders’ section of the title it is necessary that they release their claim to the property (usually by signing their names to the appropriate line of the title) before the seller may transfer the title to another name.
The very next day Tim had the title transferred into his corporate name ‘Mobile Home Innovators’ and proudly hung a copy of the title on his office wall. Later that day Tim got an outraged call from Ron (the prior previous owner) demanding Tim pay for his lien of $4,500 which Gail had promised to pay him upon selling the subject home. Ron was even threatening to take Tim to court if he did not pay!
What just happened: Back in 2005 when Ron sold Gail his mobile home, as terms of the sale Gail promised to pay him $4,500 when she resold the home down the road. This Note agreement was signed and notarized but it was never recorded or attached to the title. Therefore Ron made the costly mistake of never listing himself as equitable lien holder on the physical title and therefore had no way of letting the general public or the state know he had an interest in the property.
It was at this point I received a frantic call from Tim explaining the huge mistake that he had just made in purchasing his first deal. Tim was completely unsure of his next move; should he pay the $4,500 or not?
I quickly reassured Tim that it was not he that made a mistake. The mistake had been made by Ron; by not insisting his name be listed as lien holder on the physical title, Ron was solely trusting Gail’s word to pay him the $4,500 when she resold the home. Once the name transfers on the title there was nothing Ron could do to cause Tim legal worry. Gail lied to Tim about not owing anyone money for the home. Tim then instruct Ron to direct his anger to whom it was deserved.
Concerning mobile homes that are located on rented land; in many states a lien must be printed on the physical title in order to be enforced prior to title transfer. It is unfortunate what happened to Ron, he trusted his buyer blindly enough to not list himself as lien holder. Doing so cost him $4,500.
Of course, as with any legal matters, you may should consult with an attorney if this situation comes up for you.