As an active mobile home investor, you will inevitably come across mobile home sellers who have mismanaged their finances, not paid their bills, damaged their property, or even worse. One of these financial situations may include the current homeowner being behind on their monthly lot rent payment due to the mobile home community.
Lot rent, space rent, or pad rent are terms describing the land rent fee a mobile home owner pays to rent the land that their mobile home sits upon inside a mobile home community. This lot rent amount is typically collected by the park monthly.
Before purchasing any used mobile home in a pre-existing mobile home community, make sure to speak directly with the current mobile home park manager. Introduce yourself to the community manager, ask many questions, take a park resident application, and verify there is no back/outstanding lot rent due at this specific home you are looking to purchase.
While speaking to the park manager(s), also verify any repairs the manager would suggest with regard to any known leaks and/or improvements to the exterior of the property. For example, the manager may have a list of costly repairs required to the exterior of the home after you purchase it. These potential improvements could change the amount you are able to pay to the seller.
Let’s say after speaking with the park manager, you find out that there is lot rent still owed on this mobile home unit totaling $1,247. This money is owed to the park for the last three months of lot rent plus late fees. This particular park has been semi-patient with this resident/seller; however, they will soon start the legal process to evict the resident for nonpayment.
Aim to always understand how the park feels about this particular resident/seller. Has the park started the eviction process yet? If so, how long do you have to correct the lot rent and purchase the property? Some park managers are much more understanding with their residence than others.
Keep in mind that as soon as the seller is evicted, the park will start the process to take possession of the home. This means the park will typically end up owning the mobile home in a matter of weeks. Knowing what stage of the eviction process the seller may or may not be in is important to understand what costs are associated when purchasing the home. This may change the price you are able to offer the seller.
At this point, maybe you have decided you want to purchase the home from the seller. Who pays the back lot rent? It is now important to understand how the park operates moving forward with regard to collecting this back due amount. You will typically see one of the 3 scenarios below.
Related: 3 Things That’ll Surprise You When Investing in Mobile Homes Inside Parks
Who Pays the Back Lot Rent?
You: The buyer will pay this back amount | Most common
In most mobile home parks, you will be asked to bring the seller’s past lot rent/late fees current as the buyer. Many park managers will not allow a new person/buyer to sign a park lease without paying this back lot rent.
Since the sellers may not have the available money to bring the account current, all monies owed to the park should be paid by you. Making this payment may likely help bring the park manager and you closer together, as it makes their life a bit easier working with you. Realize you are currently solving one of this manager’s headaches.
The seller: The park will legally go after the seller for this defaulted amount | Not likely, but possible
Some parks choose not to penalize the new buyer. Instead, they pursue legal action against the defaulted resident. In these situations, the park manager will insist that you pay all home proceeds directly to the seller. It is the park’s procedure to only receive money directly from the resident. In this case, since the resident is in default, the park will take legal action to gain a judgment to recoup their losses. You will be able to sign a park lease agreement immediately.
The park: The community will completely forgive all past due lot rents and late fees | Not likely, but possible
Very few parks will simply wipe the slate clean and forgive all past due lot rents and late fees because it knows the seller is selling and a new buyer will be making payments moving forward.
This makes little sense for a park to do unless it wishes to entice a buyer to purchase the seller’s home. An example of this could be when a mobile home is being sold by a private seller who is past due on lot rent. The mobile home park does not want to own the mobile home or go through a costly eviction, abandonment, and repossession on the home. The park may have also already inspected the home to see it needs a minimum of $5,000 in repairs.
In an example like the paragraph above, this hypothetical mobile home park may forgive all back fees and start fresh for a buyer willing to make the needed repairs and resell the property. In this scenario, the mobile home park would forgive the back due lot rent in exchange for attracting a buyer who will fix up the property to have it start producing lot rent again.
Related: 5 Tips for Working with Senior Mobile-Home Buyers and Sellers
No Smooth Talking Required
In all of the three scenarios above you as the investor/buyer have little negotiation room. You are mainly asking questions to find out some facts and who owes what money. Keep in mind that mobile home parks largely wish to work with us and allow us into their communities because we are easy to work with and pay our bills on time.
Have you run into the above scenarios?
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