With the cost of home ownership escalating at a high rate, affordable housing is becoming much more than merely a new buzzword. Increasingly, manufactured housing is providing a reasonable solution to the problem for prospective homeowners all across the state. Manufactured housing is quite often less expensive, for a given square footage, than traditional housing built on the property site. Modern financing arrangements are the key to making these lower cost units truly affordable. When the transaction can be structured in such a way that traditional mortgage financing can be used, the interest rates and closing costs are, typically, reduced dramatically. As a result, the monthly installment required to amortize the loan is reduced significantly, making home ownership available to a wider population base.
These lower costs have dramatically increased utilization of the products of the manufactured housing industry. This has brought with it myriad problems for owners, vendors, lenders, attorneys and title companies. Before traditional mortgage products can be used, all improvements comprising any part of the collateral must be appurtenant to the land provided as security. Manufactured housing is personal property until affixed to real estate, and thereby becoming appurtenant to the land. The current procedures for converting personal property to real estate are derivative from the common law. There is no uniform statutory scheme for accomplishing this process. The statutes that do apply tend to impede the process with problems and inconsistencies. The common law doctrine regarding fixtures is that the intention of the party placing the fixture on the land controls. A good argument can be made that a DMV transfer of title (with or without lien) is prima facie evidence of intent to treat the unit as personal property.
Mobile home transactions are an increasing source of claims for title insurers. They are also an increasing source of frustration, stress and anxiety for clients, lenders and attorneys. These claims arise in several guises, but some of the more common follow.
The Manufacturers Certificate of Origin (MCO) is not sent in to DMV to issue (and cancel) title. The mobile home is treated as personal property, not encumbered by the deed of trust, and must be secured separately. A duplicate MCO is issued and DMV Certificate of Title is obtained by the owner (without lenders lien), or by another party, possibly an innocent purchaser. This results in inconsistent status and treatment of the land (real property) versus the home (personal property) from what was originally intended by the parties to the transaction.
The Certificate of Title has been issued but not canceled with the DMV. Under common law, the mobile home is, arguably, personal property and not covered by deed of trust. As such, it must be encumbered separately. Unless this is done properly at closing, the lender may not have a lien, and the structure remains free and clear of a lien.
Another person may hold title, perhaps an owner multiple steps back in the chain of title of the real estate. This titleholder is often not locatable, or may be unwilling to cooperate.
Dual property taxation may exist since the local tax administrator will issue one bill based on the owner or attorney saying the home is affixed to real property. Another bill may be generated because DMV assessments are based on Certificate of Title.
Inconsistent treatment of the land versus the structure results.
What are possible results of these common problems for the attorney, title insurer, purported owner and lender? An ALTA Endorsement Form 7 provides that the mobile home located on the property will be treated as "land" under the loan policy. With respect to a lender, if the closing instructions under an insured closing services letter require an ALTA 7, it may bind the title insurer to issue the endorsement to the lender. Since the structure would still be personal property and not subject to foreclosure under a deed of trust, this would give the lender the right to file a claim if the mobile home title has not been canceled. If an ALTA 7 endorsement does not apply, the lender will have to deal with the problem. Typical cures for an uncanceled title might include trying at time of foreclosure to get the MCO or the Certificate of Title canceled with DMV (converting the home to real property). This would require an original affidavit from the now defaulted borrower obtained either at the time of closing (when it could have been sent to DMV) or after the borrower is in default (when they are not usually so cooperative). A reformation action can be filed in Superior Court, alleging that the parties intended for the home to be real property but did not complete the procedure required. If successful, the lender could then proceed with its foreclosure. If unsuccessful, the lender must try to attach the home as personal property while suing on the note. In either event, the lender may suffer delay of a year or more, additional interest accrual, costs and losses, as well as substantial additional attorneys fees.
With respect to an owner, typically the owner has no coverage at all. If the MCO is not submitted or the DMV title is not canceled, loss of their home may arise. This could result from the DMV title still being in a prior owners name. They may not be locatable or may be unwilling or unable to cooperate in the transfer. Creditors rights may attach.
DMV title may be entirely in another owners name, which has never had an interest in the property by mistake or fraud. An unregistered DMV title is no better than an unrecorded deed. It is assurance of ownership as against third parties while the structure is categorized as personal property.
These situations also create problems for the attorney. When a former client transfers property, or the loan that the attorney is responsible for goes into foreclosure and any of the above situations apply, the possible ramifications are serious. Unhappy clients will tell everyone they know that the attorney did not assist them adequately in getting good title to their home. This may result in the loss of business from other would-be owners and lenders. A malpractice claim for losses not covered by title insurance may result. This may include all of the owners losses, and potentially some of the lenders losses. At a minimum, the attorney and staff will be required to devote large amounts of unproductive, and usually unbillable, time to the process of trying to remedy the problem.
Even if all the details are attended to, problems can, and do, arise. There is nothing to prevent the last registered titleholder from applying for a replacement title after cancellation. The DMV does not observe real property recordation as evidence of title, standing alone. Such a revived title can secure a loan by the prior owner. Upon default, it could take extensive litigation to resolve ownership with the outcome uncertain under the present status of the law.
Many real property practitioners are not involved in closing transactions that involve manufactured structures, and do not perceive these problems as affecting their practice or their clients. If current trends continue, this will likely not remain the case. Multistory units in excess of 3000 square feet of heated area are already being installed with great regularity. These units are being used for both residential and commercial purposes. Manufacturers can control the environment, labor costs and quality assurance during the construction process utilizing conventional mass production practices and procedures. It can be fairly said that they have the ability to produce a structure that meets or exceeds the quality of any but the finest site built building. It is reasonable to expect that if this industry follows the pattern of other skilled trades, we will see more, rather than less, of these units appearing across the spectrum of real property practice.
The North Carolina Land Title Association is in the process of promoting a new statutory procedure for the permanent affixing of manufactured structures to real property. This will involve a procedure for the cancellation of mobile and manufactured home titles with the Division of Motor Vehicles of the North Carolina Department of Transportation. Their goal is that the cancellation process will be simpler, more consistent, more reliable and easier to verify. The proposed legislation would be a simultaneous two-step process. An official declaration of intent and cancellation form would be developed to be signed by the new owner named on the Title or Manufacturers Certificate of Origin (MCO)(where applicable) at closing and the Title or MCO would be attached. This form would be recorded in the office of the Register of Deeds in the county in which the affected land is located. After recording, the original of the cancellation form and MCO or a certified copy of the recorded instrument will be registered with the Division of Motor Vehicles, Department of Transportation. A similar procedure would be allowed for older MCOs not previously recorded. It should be noted that they might fall outside the chain of title if the land has been transferred, and may require additional remedial action as outlined above. Simultaneously, notice will be forwarded to the office of the appropriate local tax collector informing them of the improvements, if no building permit is issued. Thereafter, the local tax collectors office will treat these certifications just as they do building permits in order to update their listing records for the upcoming year. In addition, the owner would be required to correct their listing at the next listing period in January, just as with all improvements to property. Thus, the property would become taxed as a part of the real estate as of the next tax listing, notwithstanding that at the earlier listing they would be personal property under N.C.G.S. 105-330. (N.C.G.S. 105-273(13)
The preamble and summary of the proposed legislation follows.
A Bill to Simplify Procedures to Convert Mobile or Manufactured Homes to Real Property and to Maintain Public Records Regarding Same
WHEREAS many consumers purchase, finance and insure mobile or manufactured homes each year.
WHEREAS it is the stated policy of the State of North Carolina as well as the United States Department of Housing and Urban Development to facilitate the provision of affordable housing to consumers at reasonable financing and insurance rates.
WHEREAS mobile or manufactured homes are constructed and transported to their permanent locations as personal property, the titles to which are governed by the Chapter 20 (e.g. N.C.G.S. 20-52 and 20-58) of the North Carolina General Statutes, under the auspices of the Department of Transportation Division of Motor Vehicles and under Chapter 25 of the North Carolina General Statutes, the Uniform Commercial Code.
WHEREAS the construction of these homes is governed by the North Carolina State Building Code under Section 143 (e.g. N.C.G.S. 143-143.9(7) or N.C.G.S. 143-145(7)) of the North Carolina General Statutes, entitled "
WHEREAS the Department of Transportation Division of Motor Vehicles has the intended purpose of governing the titles and transfers of vehicles which are "mobile."
WHEREAS upon attachment of the home to the land on a permanent foundation, it is rarely intended that the home should remain "mobile" but rather that it should be a permanent fixture upon the property, just as a home built "on-site."
WHEREAS the ability to purchase, sell and finance these homes, once placed on a permanent foundation, is better facilitated through conversion of the homes from personal property to real property, competitive with other homes built on-site.
WHEREAS currently no record facility is in place to track and verify the titles to these homes in the event that either the Motor Vehicles title was never issued or in the event the title was canceled by the Division of Motor Vehicles based upon permanent attachment of the home to real property.
WHEREAS since many local tax collectors list the home as real property even if the Certificate of Title with the Division of Motor Vehicles may remain outstanding, the risk of double taxation remains.
WHEREAS since local tax collectors may be unable to determine if the Division of Motor Vehicles listing includes mobile homes located on property within the local tax collectors enforcement area, many homes may not be taxed at either level.
WHEREAS current procedures followed by closing attorneys, manufacturers, dealers, tax collectors and financiers are ad hoc, inconsistent, expensive and often prove unreliable.
WHEREAS, as a result, many land owners are found not to be the title owners of their mobile or manufactured homes, many lenders find their deed of trust conveys only land and not the mobile or manufactured home thereon, many subsequent potential purchasers are unable to verify ownership of the home which they intend to purchase, all of which is not within the actual intention of the parties nor is it believed to be the stated policy of the state of North Carolina.
THEREFORE, this Act is proposed for the purpose of providing a public record to track the issuance and cancellation of title, and to facilitate the efficient and economic conversion of the home from personal property to real property.
The basic outline of the proposal is as follows:
The following minimum requirements must be evidenced:
Existing homes for which the DMV title is to be canceled and the home is to be subsequently treated as real property:
New homes to be attached to a permanent foundation, or existing homes for which the Certificate of Origin is available, and no DMV title is required:
A Declaration of Intent to Permanently Affix Personal Property to Real Property, N.C.G.S. 47-18.4 (as proposed) would be filed with Register of Deeds and the original or a certified copy forwarded to the Division of Motor Vehicles (with $35.00 fee). The declaration must include:
1. A Certification that the wheels, tongue and axle of the home have been removed; the home has been placed on a permanent foundation with permanent connection to utilities, such as electricity, water, sewer, gas, telephone, etc., as appropriate.
2. An attached original Certificate of Origin.
3. A legal description of the property to which the mobile home is attached
4. Signature and acknowledgment of the current record owner (at the time of recording) of the property to which the mobile home is attached. Owner of the home must be same as the owner of the land.
5. Joinder or release by any record lien holder of the DMV title or UCC Financing Statement.
This procedure establishes priority as of date of recording, as with deeds (N.C.G.S. 47-18) or deeds of trust (N.C.G.S. 47-20).
Current homes for which no DMV title record can be located and the Certificate of Origin is not obtainable:
Record a Declaration of Intent and cancel the DMV title. In lieu of the Certificate of Origin or Certificate of Title, evidence satisfactory to the Division of Motor Vehicles must be provided that the home is intended to be owned by the current owner of the land. Such evidence might include:
Deeds with transfer stamps or recitals indicating the home was intended to be conveyed
Copy of contract of purchase and sale, evidencing purchase by the owner of the home
Tax bills indicating that the home has been located on the property for at least 5 years and treated as real property, taxable to and owned by the land owner
Existing homes for which the DMV title is held in name of prior owner:
Record a Declaration of Intent. In lieu of the Certificate of Origin or Certificate of Title, provide evidence satisfactory to the Division of Motor Vehicles that the home is intended to be owned by the current owner of the land.
Such evidence might include:
Deeds with transfer stamps or recitals indicating the home was intended to be conveyed, from the record DMV title holder through and including the current landowner. An attorneys certification of title beginning with the DMV title issuance date through the current date, indicating the DMV title holder was also the land owner, and the chain of conveyances with transfer stamps or recitals through and including the current land owner. Copy of contract of purchase and sale, evidencing purchase by the owner of the home. Tax bills indicating that the home has been located on the property for at least 5 years and treated as real property, taxable to and owned by the land owner.
Specific statutes requiring amendment:
47.18.4 (to be added by defining the Declaration of Intent above, its priority as of date of recordation)
20-51(1) (to be amended by adding an exemption from the requirement of registration and certificate of title for manufactured homes on permanent foundations)
20-58.7 (b) (to be added identifying voluntary cancellation)
20-58.8(b)(4) (to be added, exempting deeds of trust on homes for which Declaration of Intent has been recorded)
20.79.2 (adding transporter plate authority for modular homes)
25-9-302(e) (including exemption from UCC for "motor vehicles" upon compliance with G.S. 47-18.4, G.S. 105-273(13) and G.S. 20-58.7(b) above)
Successful adoption of this important legislation will require a grass-roots effort from everyone affected by this process. The NCLTA has solicited input from various organizations involved and is awaiting suggestions and feedback.
What can you do?
The bill as proposed by the North Carolina Land Title Association is still in a Legislative subcommittee of that organization, subject to approval by its Executive Board. We look forward to your help and assistance in this effort! We hope that this will save time, energy and risk for all of us, including attorneys, title insurers, clients and insureds! Acknowledgment is gratefully made to Nancy Short Ferguson, VP, North Carolina Land Title Association and Counsel, Chicago Title Insurance Company, for her substantial contribution to the portions of this article derived from her work prepared for the North Carolina Land Title Association Legislative Subcommittee on Manufactured Housing.
Until legislation is passed that provides the certainty needed to handle these transactions in an efficient manner, attorneys will be forced to use procedures developed to minimize the potential for problems such as described in this article. We recommend that at a minimum, the attorney get a mobile home affidavit at closing and follow through on getting an existing title canceled. If a MCO is delivered at closing, it is arguably better for the attorney to mark it void and retain it in the file. We suggest that an instrument along the lines of the declaration of intent, described above, be recorded. The property should be listed for taxes with the tongue and axles removed, the unit placed on a permanent foundation and connected to customary utilities. We also suggest that a suitable form of affidavit can be found on our Statewide Title, Inc. web site. For those of you logged in, the affidavit form will import data from your binder/commitment, even if you faxed in the preliminary opinion.