Do you guys get Phase 1 tests done on MHPs?

Question

I'm doing due diligence on a park that has 22 lots on 16 acres.   I've included an aerial photo to help.

The parcel with the star is the MHP I'm considering.  The parcel with the arrow and above and below the arrow are ALL owned by this company.

http://www.polydeckscreen.com/

They are some kind of plastics manufacturer.   What would you do?

-Kris

Jay Hinrichs · Answer

@Kris Fox

I just did one on a park I am buying in Charleston SC.. came back no problem  its very cheap insurance. maybe spent 2500 buckaroos  .. I am changing the use .. MH's will go to the land fill  and we will build 27 homes.  Charleston IS RED HOT for builder developer types.  and I could not be farther away in ORYGUN

Joel Owens · Answer

First thing is are you getting a loan?? If you are getting a commercial loan it will be a requirement usually. The lender is looking at liability exposure in case of a borrower default on the loan.

Does the seller have a Phase one completed within the last 6 months?? Sometimes a lender will accept that.

You could put as a condition in the contract that seller is to pay for a phase one report on behalf of the borrower and the borrower gets to choose the engineering firm to complete the report.

Have you checked the EPA site to see if this is known to be close to a contaminated area already?? What about a flood plain?? Is this area in a flood plain zone?? The insurance could be really expensive.

Phase one report is usually a few grand. If something is found and it goes to phase two it could be over 10k in some cases.

Account Closed · Answer

The answer to this is you always get one done. No ifs ands or buts. Don't be cheap. You always always get a phase 1 when looking at parks .

Kris Fox · Answer

@Joel Owens

@Scott VanHee

@Ariel O.

Thanks for all of your input guys.  I've decided my first course of action is to get the third party authorization and see if Bank of America has not foreclosed for a particular reason (i.e. have they already gotten an unfavorable Phase 1?).  If I can't get any information from them, then I'll get the Phase 1 myself.

-Kris

Scott VanHee · Answer

@Kris Fox

Do the Phase I and get several quotes.  The Phase I will do more than just review the history of the property and surrounding properties.  Yes, the few thousand may sound like a lot today, but once you step in the chain of ownership, you can't undo it and can be liable for remediation.  You already have expressed a concern about neighboring properties/companies.

I'm sure a quick search of the Internet will provide you with articles/info regarding stories of people buying properties for $X, not doing sufficient EDD, and subsequently finding out that there's an environmental issue and the remediation will cost a multiple of the $X purchase price.  Even if it's not a multiple, a $50k remediation is a lot coming out of your pocket one way or the other.

Joel Owens · Answer

Is the seller in pre-foreclosure?? If in pre-foreclosure or if it has already been foreclosed and the bank is marketing it for sale most of them order a PHASE 1 report.

The reason is banks want to know before taking the property back if it is even worth doing so. If there was environmental found the banks that owns the note would likely opt for a short sale so they are not in the ownership chain of title.

So see who the lender is on this property for a copy of the report. If it's a short sale you should already have a signed authorization from the seller to discuss with all parties the particulars of the existing loan on the property and any other junior liens.

Ariel O. · Answer

@Kris Fox

Always do the Phase 1. Always Do the Phase 1. Always Do the Phase 1.

Save it for after you've done everything else that is not that expensive, but always always always. I cannot tell you how much $$$ I've saved by using Frank and Dave's due diligence book and walking away from deals that seemed great but would have cost millions.

Kris Fox · Answer

I will be getting a private loan.  The seller is in foreclosure and doesn't strike me as the type to have ever heard of a Phase 1, but I will ask.

What can I check with the EPA site?  It is NOT in a flood zone. I just checked the FEMA flood overlays.  I've read from a few reports that a phase one is just a bunch of research about land use of subject property and neighboring properties. Should I spend the $3k or do MHP investors ever skip this part of the investment on smaller parks like this?

Do you guys get Phase 1 tests done on MHPs?

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