There are several issues involved in a transaction involving a mobile home or manufactured housing unit. These issues will be discussed briefly below. Included is a discussion of how a title insurer approaches these issues. For the sake of brevity, we will refer to a mobile home or manufactured housing unit as a "MH" wherever possible.
II. North Carolina Law Pertaining To Mobile Homes and Manufactured Housing Units
A. When does a "MH" constitute real property under North Carolina law? The North Carolina law of "fixtures" is competently discussed elsewhere. See, for example, the excellent discussion in P. Hetrick and J. McLaughlin, Webster's Real Estate Law in North Carolina, Chapter 2 (4th Ed. 1994, 1995 supp.) While the law is somewhat unclear, it would seem safe to say that a "MH" must be permanently affixed to the land with the intention of the owner to have the "MH" considered as part and parcel of the land. See III, IV and V for title insurance matters.
B. Restrictive covenants, cases and statutes
In Starr v. Thompson, 96 N.C. App. 369, 385 S.E.2d 535 (1989), the court held that a factory-built modular home, designed and built to travel on wheels from one place to another place, is a "mobile home" within the meaning of restrictive covenants prohibiting such structures. This was even though the axles, wheels and tongues were removed after the home was placed on the land. See and compare Forest Oaks Homeowners Ass'n of Lincoln County v. Isenhour, 102 N.C. App. 322, 401 S.E.2d 860 (1991). The court distinguished Starr on the basis that the restrictive covenants in Isenhour permitted "modular homes" while prohibiting "mobile homes." Since the restrictive covenants failed to specifically define these terms, it was necessary to examine definitions provided by government agencies in determining whether the defendants' residential structure, composed of factory-built halves, was a "mobile home" or a "modular home." Also, see Angel v. Truitt, 108 N.C. App. 679, 424 S.E.2d 660 (1993).
G.S. 160A-383.1(f) provides that: "[t]he terms 'mobile home' and 'trailer' in any valid restrictive covenants running with the land shall include the term 'manufactured home' as defined [in G.S. 143-145 (7)]."
G.S. 41-2.5 should be examined for when a tenancy by the entirety is created in a "MH." Generally, nothing else appearing, the rules of when a tenancy by the entirety is created apply to a "MH" as defined by G.S. 41-2.5(c).
It is therefore critical for the examining and closing attorney to review restrictive covenants if a "MH" is or may be involved and to make sure, or allow the title insurer to make sure, that the restrictions do not prohibit the structure.
III. The Preliminary Title Opinion and the Title Insurance Commitment
A. The Preliminary Title Opinion
It is interesting to note that currently, the Bar Form Preliminary Opinion On Title (1989) does not specifically address the issue of a "MH." Nor does Statewide Title's form. In any event, it would be helpful if the attorney reviews the lender's closing instructions to ascertain whether a "MH" is involved. Do these instructions state whether the "MH" is going to remain "personal property" or do they indicate that the "MH" is, or is to become, "real property" or "land"? If there is no answer in these closing instructions, the lender's loan officer should be contacted.
After this review, the attorney should note in the Preliminary Opinion On Title whether a "MH" is involved and whether it is, or is to become, real property or land. As discussed in II.B. above, the restrictive covenants should be reviewed to see if the "MH" violates the restrictive covenants.
It is helpful if the proposed legal description identifies the "MH" and states that it constitutes real property. However, it is not a legal requirement for the legal description to make such a recital in order for the "MH" to constitute real property if in fact the actual legal requirements to make the "MH" real property have been complied with.
Please let us know whether the lender requires the ALTA Endorsement Form 7 (Manufactured Housing Unit - Rev. 6-1-87). The endorsement is discussed in V. below.
B. The Title Insurance Commitment
If Statewide Title, upon review of the preliminary opinion, believes that a "MH" is involved or may be involved, but there is any doubt about that, the title insurer will use a requirement in the commitment similar to the following: "The preliminary opinion or survey shows that there is or may be a mobile home unit or manufactured housing unit located on the land to be insured. In order for the unit to be insured as "land" (as that term is defined in the policy to be issued), the unit must be affixed to the land so as to constitute real property and any Certificate of Origin must be destroyed and any Certificate of Title must be properly cancelled along with any lien thereon. Statewide Title's affidavit pertaining to these matters is recommended. Statewide Title should be informed regarding whether an ALTA Endorsement Form 7 is required. The Attorney's opinion must take into consideration whether the unit violates applicable restrictive covenants."
The above requirement means that the following must be accomplished.
(1) The "MH" must be affixed to a permanent foundation constructed upon real property. Axles, wheels, tongues and other items that allow for the "MH" to be moved must be removed.
(2) Outstanding "MH" certificates must be cancelled.
Every "MH" is treated initially as a motor vehicle. At the time the "MH" is sold and transferred from its manufacturer to a retail seller, ownership is evidenced by a manufacturer's Certificate of Origin.
When the retail seller sells the "MH," the customer or the retail seller acting for the customer will apply for and receive a Certificate of Title from the Division of Motor Vehicles ("DMV"). The DMV issues the Certificate of Title based upon the manufacturer's Certificate of Origin. If the home is subsequently resold, the Certificate of Title is assigned to the new purchaser.
The majority of all "MHs" are sold and financed as personal property just like other motor vehicles. Ownership is evidenced by a Certificate of Title, and any lien or security interest in the "MH" is evidenced by a notation on the face of that certificate or perfected by the filing of a UCC financing statement.
However, when the "MH" is to be considered real property and transferred as part of the real property the Certificate of Origin, if any, must be destroyed and the Certificate of Title must be cancelled.
Cancellation is accomplished by writing the following information on the face of the Certificate of Title: "This home has been placed on a permanent foundation and is declared to be real property." The owner should then sign and date the title certificate immediately beneath this statement. If there are any liens noted on the title, these liens must be satisfied or, with the consent of the lienholder, transferred to other collateral. Satisfaction or transfer of a lien must also be noted on the face of the Certificate of Title.
The owner should then send the Certificate of Title, along with a short cover letter to: Registration Section, Division of Motor Vehicles, 1100 New Bern Avenue, Raleigh, North Carolina, 27697, Phone (919) 733-3025. Where the Certificate of Title is lost, the DMV requires that a replacement Certificate of Title be issued to the owner, and then cancelled for treatment of the "MH" as real property.
(3) The "MH" must be listed with the real property for taxes as real property. See G.S. 105-273(13) which defines "real property," "real estate" and "land" to mean: "Not only the land itself, but also buildings, structures, improvements, and permanent fixtures thereon, and all rights and privileges belonging or in any wise appertaining thereto. These terms also mean a manufactured home as defined in G.S. 143-143.9(6) if it is a multi-section residential structure (consisting of two or more sections); has the moving hitch, wheels, and axles removed; and is placed upon a permanent enclosed foundation on land owned by the owner of the manufactured home." Any outstanding personal property taxes must be paid since those can constitute a lien on real property under certain circumstances. See G.S. 105-355; G.S. 105-356.
(4) A "MH" affidavit signed by the owner is recommended. Statewide Title has such affidavits.
IV. The Final Title Opinion
The Final Title Opinion should indicate that the commitment requirements have been complied with.
V. The Policy or Policies
The title insurance policy or policies committed for in the title insurance commitment will be issued pursuant to the commitment. The policies committed for define "land" as follows: "the land described or referred to in Schedule A, and improvements affixed thereto which by law constitute real property. The term 'land' does not include any property beyond the lines of the area described or referred to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to which a right of access to and from the land is insured by this policy." Therefore, without the endorsement specified below, a "MH" that has not become real property will not be insured by the policy. (However, if the closing instructions required the "MH" to be so insured and the title insurer, through Statewide Title, has issued an Insured Closing Protection Letter, the title insurer might very well be liable to the lender and any other party covered by the ICS letter regardless of what the policy covers.)
The insuring provisions of ALTA Endorsement Form 7, referenced above, provides that: "The term 'land' as defined in this policy includes the manufactured housing unit located on the land at Date of Policy." This endorsement effectively amends the Conditions and Stipulations of the policy. It can only be used when it is clear that the "MH" constitutes "land" or "real property."
It is vital for the approved attorney to review the lender's closing instructions that pertain to "MH" status (personal or real property?), consult with the lender in the case of any ambiguity and communicate "MH" status clearly to the title insurer through its agent so that title can be insured consistent with the insureds' requirements.