News & Notes Archive - August 2007
Florida MH retailer allegedly bilks homebuyers of $452,127, manager arrested, owners still at large. Steps you can take to protect yourself from fraud.
In its August 23, 2007 issue, the Palatka Daily News of Palatka, FL (about 20 miles inland on Florida’s east coast, between Jacksonville and Daytona Beach) reported that earlier this month the owners of Sunrise Mobile Homes of East Paltaka cleaned out their offices and skipped town after allegedly defrauding 15 individuals and families of more than $400,000 over a period of months, mostly in down payments on homes never delivered or construction work never performed.
The retailer’s sales manager, who was apparently also involved, was arrested in Georgia and jailed on $185,000 bond. He is cooperating with the ongoing investigation. Six felony counts of committing an organized scheme to defraud are pending against the dealership’s owners, Patricia and Calvin Wilson, who were still at large.
Of the 15 individuals allegedly victimized, five received the homes they ordered, but no promised construction and installation services. The remaining ten were left with nothing to show for their money.
The amounts lost were at low as $2,000 and as high as $135,000. Authorities expect more cases to come forward in the weeks ahead. In some cases the losses literally wiped out buyer’s life savings.
Horror stories like this are rare in the MH industry, especially these days following the boom and bust cycle of the 1990s when fly-by-night operator were all too common, but they do happen.
What can you as a home buyer do to protect yourself from being victimized? The answers to this question are contained in The Grissim Buyer’s Guide to Manufactured Homes & Land. As the book’s subtitle —How to find a reputable dealer......— suggests, checking out the trustworthiness of retailers is an essential part of the purchase process.
From what I can determine from the news report (which was sent to me by a reader who purchased both Grissim guides), the home buyers did not exercise enough prudence in safeguarding how their money was disbursed to the dealer.
For example, one woman who wrote construction loans for $250,000, wrote checks directly to the dealer, not to the title company which was to have opened an escrow account.
Had she done the latter, the title company would not have disbursed the money to the dealer unless or until certain milestones had been achieved. These milestones should have been stipulated before the checks were written. The woman later said the home was never ordered. One of the escrow terms could have stipulated the down payment for the home would not be released to the dealer until confirmation from the factory was received that the home had been ordered.
There are other safeguards that can be made (the book describes them in detail), but the bottom line is, you must take special care to verify the trustworthiness, reputation, and credibility of any dealer before you do business with him or her, and then you must exercise firm control over when and how any money is disbursed to the dealer.
Clayton Homes Inc. getting out of the “mobile home park” business, selling 65 parks to a Colorado-based real estate investment trust. A trend to be noted.
After twenty-five years industry giant Clayton Homes is getting out of the manufactured housing communities division. On July 31, the company announced it was selling its wholly owned subsidiary, CMH Parks Inc. to a Denver-based private equity group, BaseCamp Capital LLC for an undisclosed sum.
The purchase involves 65 manufactured home land-lease communities (a.k.a. mobile home parks) in 11 states, mostly in the South and Southeast, amounting to 18,000 individual home sites. According to a Clayton spokesman, the offer from BaseCamp was unexpected but made sense. The private equity firm was founded in 2004 by several former executives with Chateau Communities, a Denver based real estate investment trust (REIT) that operates more than 200 land-lease communities around the US.
While Clayton Homes is well known as a brand name of a manufactured home catering to the entry level to mid-range affordable housing market, its ownership of MH communities has gone largely unnoticed. The company began purchasing parks in the 1970s as it grew, a shrewd strategy. Over time, the reliable rent revenues from the parks, together with in-park sales of Clayton homes, became an important hedge against the cyclic fortunes of the MH industry, particularly during the severe downturn of ’99-2005. Note: in 2003 Clayton was acquired by Berkshire Hathaway Inc, the conglomerate managed by billionaire Warren Buffet.
For prospective buyers of a manufactured homes, this news reflects a continuing national trend in the land-lease communities marketplace: the purchase of a community, or groups of communities, by large real estate corporations, some of them publicly held. If you’re thinking of purchasing a MH and moving into a land-lease community that is owned by a REIT or similar corporation, be aware that, unlike mom & pop park owners, these companies are driven to increase profits for their investors, which in turn can lead to regular rent increases that may be steeper than usual.
Most REITs are careful not to exert rent pressure but some have a history of ratcheting up rents unusually high in an effort to squeeze maximum profits, in some cases to compensate for the high purchase price they paid for their acquisition. Be sure to research carefully the ownership of any park you’re considering, especially the recent history of rent increases.
Less than half of Florida’s manufactured homes are covered by property insurance. What you should know.
The home insurance crisis that Florida has experienced in the wake of several devastating hurricane seasons shows little sign of abating. According to figures released late last month by the Florida Office of Insurance Regulation, less than half of the state’s 800,000 manufactured homes are covered. The reason: Many homes are built prior to 1974 , the year Congress mandated higher construction standards, and they have a very poor track record of survival during hurricanes.
In 2002, for example, annual MH premiums averaged around $400. Last year that figure averaged $1,000 to $1,600. Homeowners faced with skyrocketing annual premiums that have in some cases doubled and tripled, are increasingly choosing to forego coverage altogether, or insure only their personal belongings.
In 1992, after Hurricane Andrew, many insurers left the state altogether. In response, Florida, working with the MH industry’s engineers, devised new construction requirements that ensured that all manufactured homes sited in Florida’s hurricane vulnerable regions would be built strong enough to withstand winds up to 110 miles per hour. HUD soon followed in adopting the new requirements.
Thus, in areas prone to hurricane-force winds (known as Wind Zones II and III, according to HUD's new Basic Wind Zone Map) the wind safety standards require that manufactured homes be resistant to winds up to 100 miles-per-hour in Wind Zone II and 110 miles-per-hour in Wind Zone III. In both of these zones, the standard for manufactured homes is now more stringent than the current regional and national building codes for site-built homes located in these wind zones.
Interestingly, throughout Florida, not a single manufactured home built to these new standards since 1994 has suffered anything more than minor damage during hurricane events. In fact, these MH models have fared better than their site-built counterparts.
To help remedy the insurance coverage shortfall, the State of Florida a few years ago created the Citizens Property Insurance Corporation, a government-backed non-profit entity that insures the uninsurable. In 2002 the Corporation wrote policies on 5,000 mobile homes. Today that number is about 180,000.
What you should know: Insurance is available for new MH, but before signing a purchase agreement for your new home, be sure to research what’s available. Many insurance companies offer lower premiums to manufactured homes that meet construction requirements specified by the insurer. Be sure your home has them before you purchase and you could net a significant savings on your insurance costs.