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Question from Dana Radford:

I recently bought a house and now am trying to sell the mobile home I am leaving. Several people have been interested in purchasing it, however, it is almost impossible to get a third-party loan on a single-wide mobile home now without paying a huge down payment or an exorbitant interest rate. I still owe money on the mobile home, so I am considering a wraparound mortgage so the buyer would pay me for a second mortgage, then I would pay the original mortgage.

My contract says it is assumable, under certain conditions (what they are, I am not sure), so I think this is a viable option and would not involve the complications of a due-on-sale clause. However, I am not sure about the ramifications of this type of arrangement, such as:
  • Who would be responsible for tax and insurance payments?
  • What happens if the buyer misses payments to me, and I still have to pay my mortgage?
  • Would ownership revert to me, and I could have the buyer evicted?
  • What happens if after five years the buyer wants to leave, and the second mortgage was for ten years?
  • Can the buyer just walk away, having basically paid me five years of rent, and I retain ownership?
    • Any advice you can provide will be greatly appreciated.

    Answer By William Bronchick:

    Unless the sale includes land, the mobile home is personal property. Thus title passes through the State Department of Motor Vehicles. Presumably, the title is held by the lender, or you have title with a lien registered at the DMV. You could sell it on a "contract for title," collect payments from the buyer, then make payments on the underlying note.

    The insurance issue is tricky. The agreement could state that insurance proceeds received are to be held in trust by you for the benefit of your "wrap" buyer. However, upon a claim, inspection by the adjuster could reveal that you have not have transferred an "ownership interest." The insurance company could take the position that the policy is void since you no longer have an insurable interest. Court cases in the context of real estate "wraps" have ruled in favor of the insured. Presumably, the same legal principles would apply to a mobile home.

    Disclaimer: The foregoing is not intended to be given as legal, financial or tax advice, but intended for instructional use only. If you require legal, financial or tax advice you should seek the assistance of a qualified professional.

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