There is a small (50 or so homesites) low-income park in suburban San Diego, California. The resident group purchased the park about 10 years ago using a commercial real estate loan, a second mortgage loan from the local municipal government and some resident equity. The resident group operated the park, more or less successfully, for the last decade.
I got a call from a park resident who was afraid that the park was going to be closed. (The standard response was “How is this possible?” Resident owned parks are almost never closed.)
The park was led by an elected Board of Directors, which relied upon a professional Management Company to actually operate the park. As it turned out they relied too much on the Management Company and, from what the caller said, the Management Company failed them.
To make a long story short, the Board says no one told them that they needed to refinance their first mortgage. The Board blamed the Management Company, ignoring the fact that this type of stuff is typically the responsibility of the Board.
So the lender foreclosed on the loan. Normally, in the current financing market, lenders don’t really want to foreclose. They just want to get paid. However, in this case, for reasons of their own, the lender decided that they really DID want to foreclose and throw the park residents off the property. Then they could develop the vacant park property and make lots of money.
There is so much wrong with this scenario.
It is morally reprehensible (although legal) for the lender to throw a park full of low income residents to the wolves, especially in light of the fact that the residents have actually been paying the mortgage payments and were basically just inexperienced.
The LESSON is that everyone in this deal failed to meet his or her responsibilities. The Board was not paying attention. The Management Company, as professionals, did not look out for their client. Their attorney, although probably very skilled in most manufactured home park matters, was way over his head in dealing with this type of financing problem. And, finally, the park residents as a group were not making (or keeping) the board accountable. The list goes on, and includes the lender and the mortgage servicers.
The saving grace for the residents is that the lender probably had no idea the brain damage they faced in getting the local government to go along with throwing a group of low-income voters off the property. They would then have to rezone the property so they could develop it into something else, causing the local government to lose affordable housing. (Losing affordable housing is a big deal in California).
Finally, as the lender delved into the situation, they discovered that the mobile home park is in a flood plain. Consequently, the lender, to redevelop the property, is facing spending huge amounts of time and money to mitigate the flood plain and get approvals, is such approvals are even possible for a change of use. Their only alternative would be to hold a foreclosed loan forever on an old low-income mobile home park.
That means the lender will likely be willing to negotiate.
So where do I come in? I negotiate for the group. In this case, that probably means talking with the Board and the park resident group itself. Then I would review the financial information and rent roll, talk with the lender and their servicer (and the special servicer in foreclosure). One would also have to talk with the resident group attorney, the lender’s attorney, and the local government. And, after all that, together we could put together a plan to rescue the park, to include locating new financing.
That’s basically what I do in resident park purchase transactions.
In this case, I preliminarily agreed with the Board to try to gather this information and figure out a solution. But I wanted to talk with the Board to get some feel for the unity of the Board and park resident group. Since my original caller indicated that the park and Board were fighting each other, I wanted to know if they, as a group, were working together on this issue.
If the Board and Park are still divided and conflicted, the probability of success goes way (way!) down.
And that’s the FINAL LESSON. If resident groups want to purchase their mobile home park, or if they have a group problem they have to resolve, the group MUST figure out a plan and MUST be unified. If the Board is split, it is likely the group will be split, and it is likely the group will fail in its’ purpose.
Deane Sargent and PMC Financial Services have been helping mobile home park resident groups and cooperatives to organize and find financing to buy their parks for over 20 years.