By Alfred James, VP, Operations Manager — Special Services, DTO Quality Auditing & DTO Non-Escrow Servicing

When it comes to housing, America has two fairly large challenges. The first is a lack of inventory: depending on who you listen to, there is a need for somewhere between 3 and 5 million new homes. The second challenge is affordability, which, thanks to higher mortgage interest rates and steadily climbing home price appreciation, is now at its lowest point in over 30 years.

Against this backdrop, it is not surprising that a growing number of observers believe that manufactured housing is becoming an attractive alternative, particularly for younger generations, as well as low- to middle-income buyers who’ve been priced out of the current market.

A 2023 report from the Manufactured Housing Institute shows the average cost per square foot of a manufactured home was $85, almost half of the $168 cost per square foot of a site-built home. According to the U.S. Census Bureau, more than 112,000 manufactured homes were produced in 2022, representing approximately 11% of all new, single-family home starts. This represents an increase over 2020 when 95,000 manufactured homes were produced, as noted in our previous blog.  Further, manufactured housing’s reputation, which has generated negative connotations, is gaining positive ground. Recent data from Freddie Mac shows that a majority of consumers – 62% – are open to living in a manufactured home.

From a property tax servicing and escrow tax perspective, manufactured housing can be tricky for lenders and servicers, requiring expertise outside the scope of real estate taxes for traditional mortgages. As it does with traditional mortgages, LERETA provides property tax servicing for manufactured housing, including working with lenders on tax certificates and escrow estimates for manufactured housing as well as with servicers to manage ongoing tax payments. As a result, we understand that when it comes to property taxes for manufactured housing, there are numerous differences in how taxes are assessed as well as how they’re collected that can trip people up.

It’s important to understand the different ways in which a manufactured home and the land that it sits on can be categorized, titled, financed and taxed. Manufactured homes are built in a factory and then transported for placement on land that is either owned or leased by the homeowner or, in some cases, placed on a property free of charge – for instance, from a relative. Whether or not the homeowner owns the underlying land determines how the home is titled and taxed. If the homeowner doesn’t own the land, the manufactured home is considered personal property and referred to as chattel. According to the most recent data from the Consumer Financial Protection Bureau, approximately 42% of manufactured housing loans are chattel loans. If the homeowner does own the land, the unit is considered real property. This distinction can affect financing for the home as well as how property taxes are determined. In some cases, the home can still be financed as personal property and the land as real property. Homebuyers may also finance their home and land together as real property using conventional mortgage financing obtained through a traditional mortgage lender.

States Vary in How They Tax Manufactured Housing
Like traditional property taxes, states and taxing agencies vary in how, when and to what degree they tax properties. Knowing the various state laws and how they differ is critically important for tax set up and, importantly, must be monitored on an ongoing basis to keep up with changing local tax laws. Certain states, including Florida, New York, Wisconsin and others, for instance, may not assess taxes at all if the home is located on non-borrower-owned land, relative-owned land, or in a mobile home park. Other state-specific exemptions must also be considered to provide accurate property tax set up, servicing and monitoring. Manufactured homes on Indian reservations, for instance, are exempt from taxes due to federal protection laws.

From a servicing perspective, expertise is required to ensure accuracy and timeliness of tax payments based on state specifics. In Utah, for instance, if the land owner and the manufactured home owner are the same, both the land and the home are assessed and taxed on the same bill. In other states, including Texas, Oklahoma, Missouri, Colorado, Arkansas and Georgia, there are two tax bills: one on the land and a second on the home. If the land is leased, there can also be a separate tax bill for that. Tax bills may be sent directly to the homeowner or to the servicer or tax service provider like LERETA, adding an additional layer of complexity to the process. All of these variables must be considered to ensure tax bills are paid correctly on time and to the right entity.

The same complexity that makes property tax payments more difficult can also create confusion and delays with the manufactured housing origination process. Lenders need to have a general sense of how the property will be situated in order to receive accurate tax certificates needed for closings and then to set up escrow accounts. In this tight lending environment,  speed remains a top priority. At LERETA, our expertise, technology and institutional knowledge among our staff allows us to provide a 48-hour turn time for manufactured housing tax certificates.

Paying Close Attention to Parcels is Key

When determining taxes for a manufactured home, accurate parcel identification is the first order of business for escrow set up and servicing. A manufactured home may be located in several parcels, or multiple homes may be located in a single parcel – for instance, in a mobile home park. With the latter, detailed research must be conducted to determine specific taxes for the individual homes within the one parcel. What sets LERETA apart is being able to identify the correct parcel, audit it and make sure the parcel is clean in order to ensure correct taxes are paid to the correct entities.

Parcels can also be a factor if improvements are made to the home after the tax certificate is completed. For instance, a homeowner may decide to add a porch or a garage which may be on a separate parcel. From a servicing perspective, it’s important to be able to identify that additional parcel so that all taxes are accounted for and nothing gets missed due to inaccurate parcel information.

It seems clear that manufactured housing will only continue to gain traction and, with that, challenges for tax set up and servicing. It’s a complex web of variables, but with the right partner can be navigated successfully.

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