Issue link: https://read.dmtmag.com/i/76207
COMMUNITY CONSULTANT How To Quit Worrying About The Safe Act BY FRANK ROLFE There has probably never been an issue that has raised as much confusion in the manufac- tured housing industry as that of the SAFE Act. Part of the problem has been poor communica- tion between the government and the "mortgage creators", but equally to blame is simply the na- ture of governmental restrictions and the giant mound of paperwork that goes with them. For most manufactured home community owners, unlike truemortgage companies, there is no way to devote the resources – both financial and time – to come into compliance if you want to con- tinue to sell homes and carry paper. And the problem will probably only get worse. What is the "Safe Act" When the residential mortgage industry blew up a few years ago, and people started pointing their fingers at sub-primemortgages, zero-down mortgages and no-income-documentation mortgages as the culprits, the government de- cided that it needed to control the mortgage in- dustry to protect the consumer from its evil ways. Of course, every person who signed a mortgage probably knew exactly what they were doing, and there was never at any time one shred of confusion on payments for 99% of mortgagees. But still the government needed someone to blame and the mortgage industry was an easy target. Essentially, the "SafeAct" is supposed to keep us "safe" from the evil mort- gage industry. How does this relate to the manufactured home community business? Community owners often end up owning homes in their properties, sometimes simply through tenant abandonment. Additionally, the only way to fill a vacant lot these days is to buy the home yourself and bring it in. When they end up with a home, the community owner often wants to sell it. But the customer doesn't have the money to pay cash, so the community owner extends credit to the buyer with the cre- ation of a mortgage; affordable monthly pay- AUGUST 2012 18 THE JOURNAL ments until the home is paid for. Even though community owners have no interest in being mortgage companies – and certainly are com- mitting no evil act in giving the customer the credit they desperately need – they are lumped into the Safe Act by creating that mortgage. And that's where the problem begins. The problem with the Safe Act If the SafeAct was simply a sales tax or a form to have the customer sign, then enacting it would not be that difficult for a community owner.Most community owners have no inter- est in breaking the law. But, like the federal in- come tax system, it's not that simple. It's hundreds of pages of documentation, rules and forms – which are changing and increasing con- stantly. It's extremely similar to the IRS and the tax booklets you find at the post office, which are so confusing that you have to use a CPA to make sure that you are following every rule on paying the correct amount. So how do you play it safe? How can themanufactured home community owner do the right thing here – keep their busi- ness running and comply 100% with the Safe Act? The answer may be to do the only two things that the SAFE Act allows you to do with- out getting involved with it: sell homes for cash or rent themout. Basically, the best way to deal with SAFEmay be to avoid it. Thismay be eas- ier than you think. First of all, on homes with low values – homes you would normally sell for $3,000 or less – you might be better off just to sell themfor whatever the customer can give you up front, and be done with it. I'd rather have $1,000 cash in hand, then get a $3,000 note and worry about the SAFE Act. Additionally, when you sell a home on terms, you are really just renting it, in most cases, because the ten- ants rarely make it to maturity. So what you re- ally need to guard against is the repair burden – try to push the tenant to make all repairs them- selves under a "triple-net" lease. Since the net effect is the same, I'd rather rent and not worry about the SAFE Act, then sell. And the impact to your budget is a wash. The big key is to buy time Nobody knows where this whole SAFE Act thing is heading. There are many unknowns that could derail the SAFE Act for our indus- try. There has been discussion in Congress of setting a minimum home value cap that would exclude all mortgages under $50,000 (the ma- jority of all manufactured homes in communi- ties, except for maybe California and Florida). There are a number of legal challenges floating around. There's the possibility that Obama will lose election and SAFE be repealed by his suc- cessor.Maybe a Republican Congress will with- hold funding for SAFE's enforcement and operation. And then there's the giant grey area of case law – what will and will not hold up ul- timately in court. A smart community owner would want to let everyone duke it out without being a participant, and then get back in the mortgage game – potentially – once the dust has settled and the case law is airtight. Conclusion The SAFE Act has changed the way the manufactured home community business is con- ducted. Whether or not it's a permanent change is yet to be seen. But don't be a pioneer. Just rent the homes or sell them for cash, and stay clear of SAFE until there's greater visibility of how it will ultimately work. T J Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 28th largest community owner in theUnited States, with almost 6,000 lots in 17 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top- selling ones in the industry. To learn more about Frank's views on the manufactured home community industry visit www.Mo- bileHomeUniversity.com.