On this episode of The Mobile Home Park Lawyer, Ferd continues to talk about closing documents for mobile home park sales. Ferd talks about companion documents and goes through everything you must know about them.
HIGHLIGHTS:
0:00 – Intro
1:00 – A companion document is an assignment of leases and assumption agreements, which basically ensures you get rights as a landlord
2:10 – It helps for tax purposes, eviction purposes and to modify leases too
3:10 – You want the assignor to represent
5:33 – Ferd talks about what happens if the seller hasn’t collected the December rent
7:58 – This document also has a mutual indemnification provision
8:34 – Signature blocks
8:47 – Ferd also puts a little catch-all provision at the end
9:46 – It’s a really easy document
FULL TRANSCRIPTION:
Welcome back mobile home park nation. Here again today, talking about our closing documents for the close of the year. In our last episode, we covered a bill of sale and why that’s important for the purchase of mobile homes, especially when you’re buying them with the park. Especially if you’re buying them in a larger group, as opposed to a one-off from a seller in town. This is from buying it from a park.
Next, we’re going to go talk about kind of a companion document. And this is your assignment of leases and assumption agreement. This is different than an assignment of a purchase contract. Like when you’re wholesaling to try to get a fee, the assignment of leases is really important. Because it’s basically when the lessor, the seller, the landowner, and sometimes the homeowner, if you’re buying Park owned homes. So, you really need to make sure you get either a single, a double purpose assignment leases or get two separate assignment leases. This is when you were making sure you’re getting all of the rights as landlord. These are things like rights to back rent, rights to possession of the homes or possessions of the land, rights to enforce the rules, you know, blah, blah, blah. This is just really important, but if you get a disputes and this is important for indemnification provisions and purposes, because there’s a fixed date and time typically simultaneous to closing where if the previous guy didn’t rent to somebody because they were white, black, or purple, I can say, look, that’s not my problem. I didn’t do that. This was two days before closing or three weeks before closing. Don’t come after me. I can prove that I was not the lessor and this guy indemnify me go. So, go Sue him. And really, it just also helps for tax purposes. If you’re going to forgive back rent, it’s going to help for eviction purposes, you have the rights of standing. And then also you enter the lease. You have [01:48 inaudible] modify, lease, let people out of the leases early enforce rules, fines, etc. So, assignment lease is an important closing document. You’ve got to make sure you have this, much of it is boiler plate at the beginning. It’s the typical, whereas clauses in the name of the lessor, which in this document typically called the assignor the same, the name of the assignee, the date, it’s got the history of the real estate contract, the simultaneous asset purchase of the personal property. If there is any, which is the park-owned home bill of sale, you know, and then just the standard assignee, which is to assume the rights, title, interest and obligations, assignor, which is to transfer the same. Those are called the recitals, and there’s a formal phrase of acceptance and assumption of risk.
But as the buyer, the new, lessor in this document, the assignee, what you really want is the assignor or represent. And that’s a big deal in real estate, representations and warranties. I want to represent and warrant that the lot lease listed on exhibit B are the only ones, you want to make sure there’s not any hidden leases. You want to make sure you have the true and complete copies of the leases. If any, including all amendments, [02:53 inaudible], exhibits, there are two, there are no oral modifications that the assignor has performed all obligations under the lease. That the assignor not default on any leases, that there’s currently no litigation pending related to them that the assignor has not assigned its interest to another person or entity. That no [03:08 inaudible] has a right to use any portion of real property for free or in a rental rate.
Sometimes it’s kind of stuff by the way, is accepted as long as you know, I got recently worked on a case where there was three or four siblings that owned this property together in an LLC and the one brother had been living on the property and helping mom and dad run it for 50 years. And he was, I don’t know, 75 years old. And it was, it was a sticking point of the deal that he got to have a, what’s called a life estate. It’s basically he got the live their lot rent-free until he died. And, you know, he could have lived for another 30 years, but realistically he probably won’t live for 10 more years. So, my client who was the buyer, basically had to factor in, okay, that’s $300 times, 12 months times, 10 years. That’s $36,000. Does this guy going to live that long and you need to take that into pricing consideration? I don’t know if that’s ever been a deal breaker, you know, for anybody, but there is an economic impact to that kind of term. So, in this case, that provision that no one is free or [04:10 inaudible] that would not have been accurate. So, they would have struck that in a red line. And then really is the next record being, all tenants are performing their lease obligations as required. Again, unless there’s an exception. So, we typically do is we ask for a certified rent roll every month of due diligence and at the day of closing, and that’s used for prorations on the closing statement. And I’ll go through closing statements here in another episode, but it’s good for prorations. And it’s also helpful. The certified rent role allows you to track security deposits and the transfer of those, which also is included as part of the assignment of leases.
And also, typically the buyer who says my bias, the buyer gets the rights to any back rent and future rent. Now that’s different distinct for the month of closing. So, like right now, there’s as I record, this is December 21. If I were to close today, if the seller has not collected December rent, we could do one to two things, on a signed lease that the seller could get credit for December rent. In which case I get my last 10 days, but the seller is not collected. They’re going to say, Hey, if you later collect, I want to be reimbursed because they basically already gave me 10 days that I was already paid for and I would be double-dipping. So, I’ve got to pay them the 21 days’ worth. And the other way of doing it would just be to say, Hey, the seller did not get the December rent, so they don’t give me any of it. Now I got a receivable for the first 21 days and the last 10 days. As the buyer, I don’t want to really unjustly enrich the seller for not doing their job collecting rent.
Now this was on the second, this is a little different. This is generally not the month of closing is generally not a big one to fight over because there’s probably a pretty good expectation that will be collected if the history is good. If you’ve got somebody that’s 11 months behind, there’s no way the sellers, you get credit for 11 months. So typically the buyer gets credited to that back rent, but I want to make sure that’s crystal clear in my assignment leases, because what I don’t want, the day after I buy the sellers out there, shaking down my tenants, garnishing their pay or something like that. Realistically, they don’t have a big stick because they can’t take the home anymore. They can’t evict them for possession, but I don’t want them shaking down my tenants. Typically, this is not as big a deal in the mobile home park space, because if they haven’t paid, they’re probably not going to pay back rent. And as a buyer, you can maybe get them to just try to get current and start paying future rent. That usually works okay if you say I’ll forgive the five years, I’ve literally bought parks, there’s five years of back rent and say, I’m not going to ever get the five years’ worth out of you, but I’ve had some people pay six months’ worth and then I’ve had people just start getting caught up. So that’s certainly important.
When I used to do retail, I had a CVS man. They were behind like two and a half years on taxes somehow. And [06:54 inaudible] wasn’t making them pay it. And it was a substantial number, like $57,000 or something. And we didn’t put up with that. We’re just like, you need to pay us or we’re evicting you. And they’re like, okay, fine. And they paid, but for a minute there, I was like, why the heck, is this a problem? Are they going to go belly up? They were just being stubborn, so to speak, but they had the ability to pay. They just weren’t, this wasn’t their base rent. This was what’s called triple nets. And this is their taxes, [07:16 inaudible] I won’t get into any more of a tangent than already have.
Not really a big deal in MHP, but you still want to get the back rent and future rents. This document also has a mutual indemnification provision that I mentioned. I’d like to be mutual that generally makes the seller more comfortable. And it makes sense, right? It’s good for [07:34 inaudible]. And typically, we also have successors in the sign provision, which basically says in order to the benefit of the successors. I mean, if I die the day before closing or the day after closing my entity or my successor in interest gets the benefit of this. Sometimes you have the standard execution and counterparts, the cost of enforcement jurisdiction, any of those kinds of standard legalese phrases that nobody ever reads, to be honest.
And then you’ve got your who’s your signature blocks. Assigner, assignee, your exhibit A if the legal description, your exhibit B, and that’s where you list the actual lot leases. And typically, it’s the lot number or the resident name, the lot rent, the security deposit, if there’s any back to balance. And then I typically put another little person vision at the bottom that basically is a catch all like, you know, assignor, as less or certifies the above rent will be accurate as the day of closing. And the signor, lessor has not provided a signee with any written leases for the property. And [08:29 inaudible] has not provided written leases, which was the case in one of these that I did recently.
But if there are written, you want it to say, assignor has provided all copies of written leases, and there are no others other than set forth above. This one, I’m looking at here. It was recent [08:46 inaudible]. I don’t have written leases. It’s handshakes. So, I’m like, well, I want you to at least sign off so that nobody comes out of the woodwork day after closing and says, they got a 10-year, dollar per year lease.
So anyway, important closing document, I feel like this gets missed to be honest in like half the projects they work on, not the ones I work on, but it would be I guess, where I tell the seller, Hey, look, I got [09:08 inaudible] and they’re like, what is that? And this is sometimes even like professional buyers that have owned the property for two or three years. They just, I don’t know, for some reason this isn’t that popular. It’s a really easy document. I mean, it takes, I don’t know, half an hour for me to prepare one. I don’t know why people [09:21 inaudible] do this. It’s not that complicated. If you play this like three times, you probably can just plagiarize my entire document, but don’t do that. That might be illegal. I don’t think it is legal actually. It’s probably not, frankly, I don’t care. That’s what I’m here for, education. I’m not looking for your 30-minute gig, but anyway make sure you do it right. That’s part of the purpose here, right? Is educate people do this, right. You know, get your bill of sale right, your assignment of leases, your warranty deed, your owner’s affidavit, your title policy, your loan docs, like your promissory note, your assignment of rent, or deed of trust or mortgage, those sorts of things. We’ll go over some of those when we get time, but for today just make sure you get to sign leases right. Until next time, God bless Merry Christmas.
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