Manufactured Housing Nuances: What Lenders Need to Know About Title–ServiceLink’s Susan Falsetti

Susan Falsetti is the managing director of ServiceLink’s origination title and close division, with more than 27 years at ServiceLink.

With interest rates staying higher for longer coupled with steadily tight, albeit slightly rising inventory this spring, borrowers continue to explore all options when it comes to purchasing a home they can afford. Enter manufactured housing.

These often high-quality, factory-built homes offer more for less, and a once negative sentiment towards them is turning the corner. Recent Federal Housing Administration increases to Title 1 Manufactured Housing loan limits only adds to the appeal.

Today, nearly 20 million Americans live in manufactured housing and these homes are seen as playing a pivotal role in bolstering the limited housing supply. A Freddie Mac survey showed that 77% of people who were aware of manufactured homes expressed a positive sentiment toward them and 62% indicated they are likely to consider purchasing one.

The Manufactured Housing Institute reports that these factory-built homes, on average, cost about $85 per square foot, versus the $167.87 per square foot that a traditional site-built home costs. Manufactured homes have changed a lot over the last several years, now offering more choice and amenities. Since 1976, the construction of manufactured homes is regulated by federal standards defined by the U.S. Department of Housing and Urban Development.

For lenders, the rise in manufactured housing provides an opportunity to expand their portfolio, and many are taking advantage. But there’s a lot that they should consider.

The titling and conversion process for manufactured homes is specialized, complex and can be time-consuming. Rules differ by state and it’s vital that lenders partner with a title company that has experience and expertise with manufactured housing to ensure they avoid problems that could occur down the road.

What To Look Out For

Although the land is conveyed by a deed, much like a traditional stick-built home, the manufactured home is also issued a title, like a car, and considered personal property. The title must be surrendered and converted from personal property to real property, based on state-specific guidelines, with the home permanently affixed to the land.

As a part of the process, it’s important that the original title be obtained from the manufactured home dealer and surrendered properly. In the case of a refinance, lenders need to check that the process was followed correctly previously or follow the steps now to ensure the title is surrendered correctly. Depending on lender preferences, the conversion can occur prior to or post-close.

The conversion process is complex and varies greatly by state.

For example, Maine simply requires a Manufactured Statement of Origin (MSO) along with a recorded affidavit, to complete the conversion process. In New York, the manufactured home is always considered personal property and no conversion is required. While in Florida, the title must be canceled or retired and an application sent to the local county, and the conversion is only completed upon return from the local tag office.

What Could Go Wrong

If the process isn’t followed correctly, there’s a lot a lender could lose—including the manufactured home.

In the event of foreclosure, if the manufactured home was not insured or converted to real property correctly, the lender may not be able to proceed, as they do not have a vested interest in the home. The lender, then, would need to provide proof to the courts that the manufactured home should be included within the foreclosure. That process can come with a high price tag and loss of valuable time as the entire process could be delayed.

Another scenario that we’ve seen play out over the last several decades of working with the de-titling of manufactured homes is when a conversion was never completed, and a title remains open at the Department of Motor Vehicles bearing the name of the previous owner. In that case, the previous owner could come back and remove the manufactured home from the property, even though the new owner purchased the property. As you can imagine, this is the worst-case scenario for lender and borrower alike.

An Accurate Appraisal

While proper de-titling—and classifying a manufactured house as real property—are vital to a smooth lending process for a manufactured home, another area lenders should keep their eyes peeled for is an accurate appraisal.

Once again, there are nuances in the appraisal space that differ from a traditional stick-built home. Detailed information for the manufactured home is needed. If the information in the appraisal is incorrect it could change the value of the property and cause a borrower’s loan to be denied. Also, if a lender goes to foreclosure, they could lose out on the correct value of the manufactured home and or property as a whole.

In some states, including Louisiana, South Carolina and Tennessee, manufactured homes can be assessed separately from the land and a separate tax bill will be sent out for the house and property. It’s important to make sure the assessment isn’t solely for vacant land and that the home is assessed along with the land. 

What Lenders Need in a Partner

When lenders enter the manufactured housing space, it’s important to find a title service partner with experience and expertise in the niche market. Working with a partner who is not familiar with the state-by-state regulations could potentially lead to an incorrectly handled conversion.

It’s also key to find a partner who keeps the lines of communication open. Each lender has their own set of requirements and keeping them in the loop is vital so they can make decisions about how they want to proceed, like if they want to delay the process of foreclosure to convert the title or proceed and trust the partner to ensure that it will be completed post-close.

Find a partner with great customer service who knows the ins-and-outs of manufactured housing. The entirely manual process can be cumbersome for borrower and lender, and having someone on the other end of the phone who can explain the entire process can help ease that burden.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)