Ep. 33 | Special Report Regarding Agency Loan Changes and Govt Lease Intrusion
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On this episode of The Mobile Home Park Lawyer, Ferd talks about the new provisions that are now a minimum requirement in lease contracts. Ferd goes through each provision explaining what they mean for him and what they may mean for you. Enjoy!
“Frankly, I’ve already got some of these in my lease. So overall I would say on an A to F schedule, how painful are these? I would say they’re a B. Frankly they’re not that horrible, but it is just another opportunity for the government to be in your kitchen.”
0:00 – Intro
1:34 – FHFA have reduced the funding allowed for lending from 80 billion to 70 billion, 50% of which is needed to go towards affordable housing
4:04 – There are 8 lease provisions, and as of 2018, 35% of loans had 5 of these provisions, 43% of loans had 4 provisions
5:12 – Provision 1 is a year renewable lease term unless there is good cause for non-renewal
5:31 – Provision 2 is a 30-day written notice of a rent increase
5:32 – Provision 3 is a 5-day grace period for rent payments and the right to cure defaults on rent payments
6:01 – Provision 4 is the right to sell the mobile home without having to first relocate the property outside the premises
6:14 – Provision 5 is the right to sell the manufactured home in place within a reasonable time period after eviction by the manufactured home community manager
7:10 – Provision 6 is the right to sub-lease or assign the pad site lease for the unexpired to term to the new buyer of the tenants manufactured without any unreasonable restraint
8:07 – Provision 7 is the right to post for sale signs
8:15 – Provision 8 is the right to receive 60 days’ notice of the planned sale or closure of the manufactured housing community
9:41 – Overall, Ferd would say that these provisions are a B on the pain scale, but it’s just another excuse for the government to be in your kitchen
Welcome back mobile home park nation. Here today we’re going to talk about something that it’s kind of near and dear to a lot of us. And that’s agency lending. In particular, this is a special report on the November 17th FHFA announcement. That’s the Federal Housing Finance Agency that impacts Fannie Mae and Freddie Mac loans. You know, quote, the enterprises or the agencies. There’s been a decent amount of information bouncing around in the mobile home park, manufactured housing park space. The last couple of days, I’ve seen some people say, don’t worry, it’s nothing new. I’ve seen some people say the sky is falling, rates are going to go through the roof. So, I decided to do a little homework here, this beautiful Sunday afternoon here in Kansas City and read this thing for myself and you guys get the benefit of it, whether or not I’m right. I guess you can look up, look it up on your own, but here’s how I see it.
So, diving in, what are these purchase caps? Well, basically FHFA has reduced from 80 billion down to 70 billion, the amount of funds available to lend for each of the enterprises. It’s not a huge deal, frankly. The bigger issue is at least 50% needs to be for affordable housing. That’s up from 37.5% and for MHPs, mobile home parks or manufactured housing communities, however you want to, you want to call it, the same difference. You have to be A, resident, government or non-profit owned well, that’s pretty few and far between or B, they must have tenant-pad lease protections to be counted as mission-driven.
Okay, the key here is without the mission-driven you could be looking at interest rates anywhere from 25 to, you know, I think I’ve seen as high as 80 basis points people have referenced. This article I read today didn’t really reference that. But I’m hearing more like 30 bips, which is not insignificant, pretty much puts a lot of the financing more in the apartment space interest rate, which is not as attractive as we’ve been used to hear the last couple of years in mobile home parks.
So those are the three of the first key points. The fourth key point would be that this only covers the first four quarters of 2021 calendar year. So, it might behoove you to close before year-end, if you were like, I’m looking at a deal right now, it’s about 2.72 million I’m under contract on. And that that’s pretty good. That’ll qualify for Fannie Mae. It’s too small for Freddie Mac, a small balance sheet loan, but it qualifies for Fannie Mae. Well, I was planning on that being a January close. Well, looking at this, I may want to just determine, I need to get this thing closed before the end of the year.
So anyway, diving in, I’ve heard a lot, people say, well, it’s not going to do the interest rates. It’s just having, you know, just some new provisions in your leases. Okay, well the lender may be able to tell you it’s no big deal just to lease addendum. Okay, well, I’m an operator. Okay. And I’m a lawyer. So, I kind of care about what that lease addendum says, and I’ve not seen anybody else post anything on this. So I dug in and I looked at the FHA announcements, looked the appendix a, I looked at the multifamily fact sheet and it doesn’t tell you what these stupid provisions are, just says, it’s in the duty to serve. So, the last reliable source that I’ve found is the duty to serve, to say your spotlight underserved markets, tenant protections, and manufactured housing communities.
So, here’s the meat for today. There are eight lease provisions. And if you think these are no big deal, here’s what the stats would say. This Fannie Mae and Freddie Mac, they looked at their loans. As of 2018, only 35% of the loans that they issued had five of the eight provisions. Only 43% of the loans had lease provisions that had four of the eight tenant protections. So clearly Fannie Mae, Freddie Mac, they’re looking to implement more tenant protections. This is kind of like the government gettin involved in your business. I’m not saying this is onerous is a Section 8 or a Section 42 or low-income housing tax credit, or certainly not as onerous as rent control, but these are not, they’re just not in leases by and large. And there’s in several states, don’t have any of these tenant protections in place. So, I’m in the process of doing a state-by-state template lease. And I’m doing the state-by-state review of landlord-tenant law. But for purposes of agency lending, these are going to be the new rules, unless you want to pay a premium on your interest rate.
So here we go, eight provisions are number one, a one-year renewable lease term, unless there’s good cause for none renewal. Okay a lot of people in the industry, they like to do month-to-month leases or, and then non renew them for people that are problem children. This is going to make that harder one-year minimum lease. Several states already have that. Some states like Illinois, you have to offer a two-year lease. So that’s not a huge deal to me.
A 30 day written notice of rent increases. That’s not a big deal to me either. Some States are 90.
Number three, a five-day grace period for ramp payments and the right to cure defaults on rent payments. The five-day grace period is not a big deal to me, but I have that in my template lease anyway. Because a lot of states do require it. So, it just makes it easier. But the right to cure, you know, that’s a little more of a challenge. Cause sometimes I choose not to accept a tenant rent and say, nope, you’re in default, you’re out. And it gives a good chance to get rid of a bad apple. So, it’s a little harder.
Number four the right to sell the manufactured home without having to first relocate it out of the community. That’s only a problem if the person’s got a junky house, frankly, I don’t think I have that come up very often.
Number five, this one kind of pisses me off. The right to sell the manufactured home in place within a reasonable time period after eviction, by the manufactured housing community owner. And elsewhere, I saw that it should’ve been 45 days. So, based on this, the person cannot pay you, you can evict them. And normally that’s kind of your muscle. Either they pay, or you’re going to take their house, you know, through a number of legal procedures. But now there’s a no, no, no, they have a right to sell it and that next person they sell to may try to move it out, may try to sell it to a sex offender. So there, I think there’s still going to, it’s still implied. I think that I have to, if I own the park, I have to approve the next tenant. I also think this is a good chance to put a right of first refusal in your lot lease so if they do sell it, you have the right to match the terms within a reasonable time so that the home can’t be moved out. But back to this regular scheduled programming, no sidebar here.
Number 6, the right to sublease or assign the pad site lease for the unexpired term to the new buyer of the tenants manufactured home without any unreasonable restraint. I think that’s a little bit of problem. I don’t like having tenants have the right to assign or sublease their interest, unless I say so. Now here I’m getting, I can still stop it, but without any unreasonable restraints. So that’s probably not too big a deal, but it could get gray. I mean, to me, it’s unreasonable if the next guy makes less money, if the next guy, you know has a criminal background and there’s eviction background. So, what is the unreasonable? I think it’d be pretty obvious if they tried to sell it or sign their lease rights to a sex offender that I could block it. But what if it’s a guy that, you know, just went to jail for drug distribution five years ago, maybe I don’t want him in here. Maybe I wouldn’t have approved him, but he’s already served his time in jail. He’s already been remediated according to the law. Now I am stuck with him?
Number 7, right to post for sale signs. That doesn’t bug me at all. Frankly, I think it’d be a jerk if I didn’t allow that.
Number 8, right to receive at least 60-days notice of planned sale or closure of the manufactured housing community. Okay, the 60 days on the planned sale, that’s a little gray. If I want to sell my park and I want to list it for sale, do I have to notify all the tenants I’m planning on selling it or do I only have to notify them if I’m under contract to sell. A lot of contracts drop, I mean, most landlord, most owners, they don’t want the tenants to know that the properties for sale, they don’t want to go looking around, looking for a memorandum, seeing what this thing’s worth, seeing what the price is, and then getting itchy about you know, I’m paying rent to this guy. He’s making all this money. And then also a lot of times tenants stop paying the current landlord. I see this all the time when I’m buying. There’s a bunch of bad collections the last minute. I think because they know that the landlord’s not going to evict them one, to pay the legal fees, but two, to decrease occupancy right before a sale. So, this one is a little frustrating, especially because it’s gray to me right now and I’ll have to do some more digging, but I want to get this report out sooner than later. You know, is the plan sale once I’m under contract or is the plan sale when I’m getting ready to list it with a broker, put it on the internet for sale.
So anyway, those are the eight provisions that need to be, and these are minimum protections by the way, that need to be in your lease. So, you know, ultimately are these that big of a deal? That’s a person-by-person decision. You know, frankly, I’ve already got some of these in my lease. So overall I would say, you know on a, A to F schedule, how painful are these? I would say they’re like a, B. Frankly they’re not that horrible, but it is just another opportunity for the government to be in your kitchen. And it feels like a slippery slope could be coming. Now, they get you here with a little bit, you know, they give them an inch. I think they’ll fo for the mile next. It just feels like that to me, it just feels like, you know, you give a mouse a cookie, they’re going to ask for a glass of milk here. And that’s a little scary. So anyway, like I said, I’ve got a property under contract that I’m planning on an agency debt, but I’m going to watch this closely and I’m going to a local bank simultaneously. So, I may just go with the local bank. Obviously, the downside of a local bank is the recourse. But the upside of going with agency is it ideally a lower interest rate and if I close it for them in a year, I can seemingly get out of these eight provisions, but we just need to look at them. We just need to evaluate them. Again, these are the Duty to Serve and Tenant Protections as part of the November 17th, FHFA, multifamily loan purchase caps. That’s kind of the general topic for today. So, feel free to leave comments below, or shoot me a question if you’ve got one. Till next time, be smart, be safe. God bless.
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