by David Loop, Attorney
Q: What are the advantages of residents owning their park?
A: There are two main advantages:
When mobilehome owners buy their park, they take charge of their futures. They protect their investment in an important asset: their homes. They protect themselves from rising rents. Their monthly payments become more stable. They no longer rely on local governments to manage their rents through rent control laws.
Another important advantage is control. When residents own their park, they control its management and rules. They decide which capital improvements are necessary. They select a property management company to manage the park. They no longer rely on a landlord, whose main concern may be profit rather than the welfare of those who live in the park.
Some other important advantages:
- Increase in home values: Mobile homes located in “resident-owned” parks are worth more than those in “space-rent” parks. Home buyers are willing to pay more for a mobile home when they get an ownership interest in the park.
- Homes in the park become more marketable: Mobile home buyers today would prefer to buy in a park where they can get an ownership interest in the park. So, a resident-owned park is a more attractive place for home buyers to invest.
- Stabilized monthly payments: “Investor” park owners want to see rents increase, so that their profits increase. When the residents own the park, their goal is to keep monthly payments stable and affordable over the long-term.
- Control of the park is in the hands of the residents, not an outside investor: You have a vested interest in how your park is run. Through an elected Board of Directors, the residents would control the park. They would decide how to maintain and repair park facilities. Homeowners choose park rules and regulations, and decide how these should be enforced.
- “For Profit” park operation changes to “nonprofit” operation: Since the park is owned and operated by the residents, any “profits” are put back into the park for repairs and improvements to park grounds and facilities.
- No increase in CA property taxes at time of purchase: When residents buy their park as a nonprofit corporation, the existing tax basis “carries over.” Their property taxes remain the same as the current owners. If a private investor buys the park from its current owner, property taxes will go up. In most cities and counties, the new owner can pass 100% of these increased taxes on to the residents.
- Increased sense of “community”: When a park is resident-owned, all the homeowners have a stake in keeping the park beautiful and functional. The security of ownership motivates residents to maintain and improve their homes.
Q: What are the risks if residents don’t buy their park?
A: The owner could sell the park to another “private” investor. This might be an individual or a corporation. If this happens, the park might not be offered for sale for at least another 5 years – perhaps longer. At that point, appreciation in the park’s value could put it economically out of reach of the residents.
There is also the risk that a new owner might not be as satisfactory as your current one. The worst case would be a large corporate buyer, interested only in maximizing profits and not in maintaining the park.
Q: What is the most common form of “resident park” ownership?
A: There are various forms of resident ownership found in mobilehome parks. The most common is ownership by a nonprofit corporation (“homeowner association”), made up entirely of the homeowners in the park.
Nonprofit, Mutual Benefit Corporation
Using this method, park residents incorporate their homeowner association as a “nonprofit mutual benefit corporation.” Then, they obtain permission from the California Department of Corporations to issue shares. Each member buys an interest (one share) in the association, and the association holds title to the park. Members occupy a space in the park, and pay their association a monthly homeowner’s fee. Those who do not purchase a membership can continue to rent their space in the park.
Because of its relative simplicity, affordability and shorter time frame, this is the most popular type of conversion. Most homeowner groups in California have used the “resident owned corporation” method to buy their park.
A “subdivision” is different from the “resident owned corporation” described above. In a subdivision, homeowners buy a separate interest in their lot and an undivided interest in the “common areas” of the property. These projects must comply with California Subdivision Law, and can take many months or even years to complete. Often, homeowners and park owners want a quicker conversion process (i.e., the “resident owned corporation method”).
In a subdivision, each homeowner needs to have the cash to buy their lot, or to qualify for financing to purchase their lot. This can be a problem for senior or low-income residents. Subdividing tends to divide parks into “haves” and the “have nots.” It can force lower-income residents to leave the park. When initiated by a park owner, it is usually an attempt by the owner to circumvent local rent control laws.
“Outside” Nonprofit Corporations
Mobilehome park residents should beware of situations in which an “outside” or “501c3” nonprofit corporation offers to buy the park for the “benefit” of the residents. In these programs, the “outside” nonprofit owns and controls the park after the sale, not the park residents. In some of these cases, the end result is a happy one for the park’s homeowners. In other cases, the result is not so happy.
Most resident groups prefer to buy the park through their own homeowner association. Then, the park homeowners own and control the park after the purchase. The homeowner association is their nonprofit corporation, created only for their benefit. This takes some organization, and purchase of a share by a substantial number of the homeowners. But when the park purchase is complete, the homeowners own and control the park real estate – not some “outside” entity.
David Loop is a real estate attorney and past homeowners’ association president at resident-owned Aptos Knoll Park, near Santa Cruz. You can ask him questions by sending an e-mail to deloop1, or calling 831-688-1293.