Manufactured Homes: A Growing Market and A Growing Challenge for Servicers

By Heather Amick, Senior Client Executive, LERETA

Approximately 22 million Americans live in manufactured homes today, and that number is expected to grow as the price of a site-built home becomes less affordable and the population ages. But as the popularity of manufactured homes grows, so will tax servicing challenges for banks, mortgage companies and credit unions.

There are two basic reasons for this: the first is the variety of ways that manufactured homes can be assessed; and the second is the central role that owners play in the title and tax processes.

Solving for these challenges will require better information and an ongoing effort of the part of lenders to proactively educate borrowers.

The Market at a Glance

The global manufactured housing market is a $27 billion market.  In terms of units, there are 4.8 million owner-occupied and 1.9 million rental manufactured homes in the U.S., and last year, 95,000 new units were shipped. The preponderance of these homes are located in 10 states, eight of which are in the South.

According to the U.S. Census, the average cost of a manufactured home in 2020 was $92,600. This compares to more than $300,000 for the average site-built home.  

As Fannie Mae noted in a recent report on the manufactured housing market: “As the housing affordability crisis has deepened, manufactured housing is garnering more interest as an important source of affordable housing, particularly among rural and low-income households. In addition, it costs significantly less and takes less time to build a new manufactured home than to build a new site-built home of comparable size. As a result, manufactured housing has the potential to be an important tool in adding new homes to the housing supply…”

While manufactured homes may be easier to build and faster to finance, they can be more complicated than traditional homes when it comes to taxes.

Taxing a Moving Target

Depending on the jurisdiction, a manufactured home can be assessed as real property, as personal property or even as a vehicle. The distinction usually involves whether the unit has wheels and axels and whether it is seated on a foundation…but not always.

If it’s considered real property, and about 37% of all manufactured homes are, then both the home and the land beneath can be financed with a conventional mortgage. Most of the time this means the owner receives one tax bill for the home. But there are jurisdictions—in certain states, like Texas (homeowner option), Oklahoma, Missouri, Colorado, Arkansas, Georgia—that can send separate tax bills for the home and the land, depending on borrower assessment selection. 

Most manufactured homes, however, are assessed as personal property, and this is where setting up and monitoring escrow accounts can get tricky. That’s because the assessment could change, based on a number of variables:

• Have the axels been removed?
• Is the unit on land owned by the homeowner [or a relative]?
• Is it on land owned by someone else? 
• Is it in a manufactured home park? 
• Do the park fees cover the taxes?   

So, the challenge becomes determining how the jurisdiction has assessed the home and what the homeowner may have done to alter the assessment type. For example: the owner moved the unit to another state or county and placed it permanently on owned land or within a manufactured home park.  

In some parks, the taxes are paid through the park fees. But in New York, older borrowers can opt out of paying through the park fee, in which case, they are responsible for paying the taxes directly, in which case a lender may need to escrow for the taxes. Similarly, in Texas—the state with the most manufactured homes—owners can choose to title the home as real or personal property, and they can have it assessed with or without the land, if they own the land. And they can have it initially assessed together, and then later choose to split the assessments.

Servicers are usually not included on communications between owners and taxing agencies regarding changes in assessments, so servicers often aren’t aware of problems until taxes are delinquent. In Virginia and Pennsylvania, for example, taxing agencies send the bills directly to the owner, and not to the servicers. 

Consumers are often confused by intricacies of the assessment and tax processes until a tax bill (or multiple tax bills) are missed. Then they get upset, complain to their lender.  Their lender, in turn, complains to the tax service provider for missing the payments. 

In addition to the variation in assessments, some states have different tax due dates for manufactured homes. In Mississippi, for example, taxes are due Feb. 1 and are payable in advance instead of in arrears. Meanwhile, in Georgia due dates vary by assessment type –manufactured home due dates in Georgia is April 10^th and for real estate it is November 10th. These assessment differences can also create problems for less experienced manufactured home lenders and tax servicers.

In the case of our company, we’ve been a tax servicer for manufactured housing since 2007, so we are keenly aware of all the nuances by state/jurisdiction. We have a very detailed questionnaire that we send to the assessor and have a team of people that specifically know how to look for manufactured home tax information. In fact, we have developed specific processes and tax line set ups for manufactured housing so that we can identify if a property is a chattel (personal) only loan and whether or not a separate tax bill is due for the land under it.

Partnership with Borrowers

As we’ve discussed, most consumers are only vaguely aware of how the tax assessment process works and that they need to notify their lender of any changes to their assessment(s). Because consumer cooperation is essential, we recommend manufactured housing lenders consider having an ongoing education/communication program with borrowers.

Some of the “tax tips” that they could offer new owners include:

• Be sure to register your home with the county so it may be appropriately assessed for taxes immediately when the home is placed.
  • If you don’t, the taxes will be assessed at some point and will go back to the time the home was placed on the property and may cause a significantly high tax bill that the funds in your escrow account may not cover causing your monthly mortgage payment to increase. 
• Send your first assessment and/or annual tax bill to your lender if you escrow for taxes so your lender can validate and pay your tax bill when it becomes due.
• If you escrow for taxes through your lender, do not pay the tax office directly.  
• Lenders do not typically escrow for supplemental or interim tax bills.  Contact your lender to confirm whether or not supplemental/interim tax bills are covered in your escrow account.
• If your home is in Virginia or Pennsylvania, tax bills are sent directly to you. Be sure to send them immediately to your lender.

If you own the land on which your home is placed:

• If your loan is for the home only (chattel) and you are placing the home on land you own, ask your local tax assessor for a tax bill for the land and have them assign a separate parcel or PIN number for the land and one for the home. (Your lender generally does not escrow for land taxes if they are not loaning money for the land.)  
• If you are placing your home on a family member’s land, make sure your home is assessed separately from the land. You do not want to end up paying the land property taxes along with your home.
• Notify your lender if the tax office will not split the tax bill so you can come to a mutually agreeable solution to paying the property taxes on a combined tax bill.

If you are placing your home in a mobile home park:

• Verify with the park owner if you are responsible for paying taxes directly or if the taxes are included in the rent/lot fees.
  • If your taxes are included in your rent/lot fees, please notify your lender so your escrow can be adjusted. You may need to provide proof that the taxes will be paid through the park.
  • If your taxes are not included in your rent/lot fees, please verify with your lender that they are appropriately escrowing for your property taxes so you do not end up with a shortage in your escrow account which will cause your monthly mortgage payment to increase.  

Does this require extra effort? Yes. But it’s worth it to avoid problems that could jeopardize your collateral, your relationships with your borrowers and, at the end of the day, their homes.