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BACK TO CORNFIELDS? Part One: The Decline of Communities

by Marty Lavin, JD

marty lavin 50The news - A keen eyed observer who watches the Manufactured Home (MH) news scene might have noticed recently a move towards defining land lease communities (LLCs) as the holy grail of affordable housing by governmental entities.

Every story of possible LLC closings brings supporters to the ramparts, extolling the good this housing type provides. I suppose better late than never encapsulates my perception of this new bent. It just seems that LLCs are getting more attention recently than ever before. 

As it comes to affordable housing, at least in that category, LLCs are in.

After all, it wasn’t so long ago that James Carville, the Louisiana Rattlesnake, was dragging a $100 bill thru “a trailer park” to see if Jennifer Flowers would crawl out. I don’t remember a big backlash about that comment. ‘Trailer parks and whores’ have long been joined at the hips, right? It was OK then to speak ill of LLCs.

Since then, in the mid-1990s, something has befallen ‘trailer parks:’ they have achieved some respectability. It seems keeping the supply of LLCs intact has become a big cause with governments and non-profits.

Now, don’t confuse this with building new LLCs, just a move to resist the closing of existing LLCs. Seems at first blush to be happening all over the country, even in rent control heaven, the State of California. Who’d a guessed? I thought they hated all MH.

To say the LLC situation is confusing at present is an understatement. It is highly confusing. On the one hand many LLCs are much sought after to purchase by investors, while others are closing. Several major investment articles have extolled the virtue of LLCs as an investment. They are a hot commodity. Figure on that one.

The Jetsons

When I first started my career in MH the “George Jetson Go-Go” era was in full throttle. With some 580,000 homes delivered in each 1972 and ‘73, we were flying so high we all had nose bleeds. MH constituted about 50% of all single family housing starts. You heard right, Bucko, 50%. Today we running around 9% of all housing starts.

Is there any question why we all believed back then that someday we would all be living in a MH? No, we all believed it, you know, like George Jetson.

Then in 1974, we had a vicious volume pull back, reducing sales about 200,000 homes in one year. Not sure many of us hadn’t seen the signs of a pullback mounting, but as in 1998, the last BIG year, we didn’t want to accept what we could clearly see. A fallback caused by bad MH lending and ample fraud gave a future look towards “THE BIG SHORT,” the great, recent movie of the housing collapse of the early 2000s.  I can’t say for sure in the late 1990s that one lap dancer financed and owned 7 MH, but they might have. Nothing was too extreme. A study of a $10.5 billion MH portfolio revealed about half the loans were so poorly documented they were unenforceable. Yes, yes, they were classified as a Triple A quality portfolio, investment grade.

I also note 1974 was the year the HUD Code law was passed and we buried the dead George Jetson. Not because of the passage of the HUD Code, though most thought that its passage signaled the end of Trailerville as we knew it. No, it was the terrible fall off of volume, sales never again neared 1972-73 levels. Interesting to note how aggressively the industry hangs on to the once feared HUD Code today. Quite a change. Today, we hang on to it like a child’s security blanket.

From 1969 thru 1973, a total of about 2.5 million MH were sold and sited. Where? Well, mostly in mobile home parks. Starting in the 1960s a blaze of ‘park building’ created thousands of communities in numbers not seen since.  Somewhere between 25 and 33 % of all MH/mobiles ever built left the factories in that era. Which, of course, gives evidence of the aged condition of that era’s communities and their many homes.

There are many ramifications of this age, both in the homes and parks. And they’re unrolling now before our very eyes. Note that I have never seen a formal, detailed study of the actual numbers of LLCs in the country, when they were built, and those since closed. Depending on whom you listen to, there may be roughly 45,000 active communities today.  That’s down from an estimated 55,000, roughly 20 years ago.

Built to sell in

The ‘parks’ were originally created to site homes for the retailer who built it, in most cases. Though he might initially have built it to sell homes into it, once full, its value as a cash asset soon became evident. Today, many of those long-ago built ‘parks’ see their former owners living the good life in Florida after a profitable sale of the community to investors. For obvious reasons, investors love buying from the initial developer of the LLC.

The first ‘parks’ built in the 1960s-1970s were built for mobile homes, and the term ‘park’ was a better fit then than now.

They were also build in a different manner and different locales than today’s relatively few new LLCs.

First, the attention to infrastructure details was more lax – sometimes in the extreme – back then. At the time, one bought the land ‘today,’ met the bulldozer at the site the next day, and instructed the dozer to drive a road straight down the cornfield. “We’ll start placing the homes down each side tomorrow. Put in 55 gallon barrels for septic, or just lead the sewer line over to that swamp.”

Laugh, eh? I didn’t when I found conditions like these in the ‘parks’ I bought. But even if done correctly by the conditions of that time, the systems tended not to work well, and were difficult to repair after the fact. We see such conditions and more in many of the communities now undergoing closure. Weak infrastructure is a common and prevailing problem, which is difficult and expensive to repair.

 

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Bad sites

The second difference in older communities is their location.

It’s no secret, as I found many years ago, good sites for MH communities are in competition with many other land uses, many of which can afford a more expensive site.  More importantly, the other use is usually far more accepted by zoning and the public than a MH community, no matter how sacrosanct the “affordable housing” use may be. Affordable housing seems to have cachet after the fact, when already built and existing, not before.

Today, a desired new community it is a potential “trailer park.” Undesired.

The above notwithstanding, the type of MH chattel lending in vogue from 1960 thru 2001 allowed extremely marginal park sites at the edge of town, or sites with no municipal services and poor water or septic, to be developed. If the borrower could “fog a mirror,” as the saying goes, and be proven to probably be alive, the chance of a chattel loan approval was very high.

That kept many marginal communities full with many folks who otherwise would live in their mother’s cellar or sleep in their dually pickup. No other housing lender would touch them, except ours.

Then as defaults went Code Red, we usually had a two to three year industry down turn, which cleared the lender ranks.  The industry disposed of repos, and awaited new lender arrivals. And then “have you seen the rates they charge for trailer lending” always prevailed with new prospective lenders, and a another group of sacrificial lambs came to the industry-lending rescue. Happy times.

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Note: captions and images were added by the editor, as is customary.

Full became empty

Those homeowners in the many ‘blue collar parks’ constructed were prepared to accept some pretty edgy stuff. When the toilet was flushed, the load went somewhere, that passed the test.  And go it did, sometimes under the home, at times erupting above ground, and even into the great flusher, streams and rivers. Bad times at Orangeburg Estates. Let’s just say some residents, and many regulatory authorities, were not amused.

When full or almost full, these communities could be patched and babied along to keep them going as the money flow was there.

However, as 1998 chattel lending transitioned into post 2003 stringent chattel lending, the mirror fogging was not enough. Now the jig was up. Vacancies set in with a vengeance, and at the same time regulatory authorities broke infrastructure knuckles. You can battle this deadly duo, but it is often fatal in the end.

Some ‘parks’ just closed, little redemption for their problems. Others though they started at marginal locations when built, as time passed graduated to BIG BOX capable.  Those were sold, closed, took the money and ran. Note that often little thought was given to the residents of the community at closure. They may have taken big loans for long terms, some as much as 30 years.  All to buy their home, to settle into the community. Now, out they went.

Presumably, the homeowner took that long-term loan under the misconception that they would always be able to stay there. Silly them. They never gave a thought to the community owner’s needs, nor he to theirs. Closure, here it comes! Back to a cornfield or better yet, into a Walmart. The deposed former community resident gets to be a greeter there. It’s an ill wind which blows no good.

The relatively recent move by localities to declare MH communities “affordable housing treasures” came too late for many parks closed in the last 20 years. It seemed a trickle of closing in the late 1980s, picked up velocity in the 1990s and continues unabated despite resident owned communities (ROC) salvaging some.

The deadly duo of park deficiencies and high vacancy kept the pressure on. An ROC often encountered the same difficulties as the former owner. The ROC stepping into the former owner’s shoes with large rent increases has its own limits of acceptance.

Many fewer

Regardless of the various factors playing into the very large reduction in communities through closure, for whatever reason, there are fewer communities available today for people to rent a home site and for placement of a new home. A whammy for customers and the industry.

Of course, in the absolute, this all goes back to the loss of ‘GreenSeco’ type financing.  George Allen, he of the MH community knowledge and memory, has calculated the enormous number of vacant sites in LLCs today. On the one hand, this presents a sales opportunity, as those sales number into the 100s of thousands.

Let’s see now, just between us kiddies, imagine you are in an area with 8 communities. Several have substantial vacancy. A number of years have passed with no betterment. Maybe vacancy has grown. What is most likely to happen in the not too distant future?

I would guess one or more of such marginal communities will close or resell for another use. Either eventuality does absolutely no good for the industry and can be very hurtful to the residents of closing communities. If the community owner does not get an advantageous sale, he is no happy camper as he closes.

We read or hear of these community closures with terrible regularity. Some poor resident is interviewed ‘on air.’ They know there is a strong possibility they will lose their home, have to move children to another school, leaving friends behind.  Such events can cause divorces, loss of jobs, and extreme anxiety. One has to be a tough bastard to be unmoved by this. I just don’t think “we own the land and can do what we want with it” is convincing, and neither does the public, no matter how convincing it is some in Trailerville.

Somethings gotta be done

It seems to me that very soon this industry must come to grips with some measures to combat the bad results of park closings.

Standing by as our customers are stripped of value and peace of mind brings the happy Burghers of WWII Europe to mind, as they watched the carnage of certain peoples and nothing was done. “Eez nauwght our chob, mon.”

TakeItOnTheChinMHProNews

“Eez nauwght our chob, mon,” means take it on the chin man, editor's note.

 

Can we not have some industry action on dealing with the non-profits, and regulatory authorities, to try to salvage something either before or after closures?

Can we not as an industry in most states offer counsel to homeowners in closing communities, some help where their home could be moved to another community or location?

Is there no way to build more funds in more states to assist with home movement?

Can’t more encourage and offer long-term leases in communities, to try to give park residents a greater degree of comfort?  Wouldn’t that make the investment in buying a new home more sound, so that the rug won’t be tripped out from under them?

Must we just stand by and watch what little remains of this industry, which once sold one of every two new housing starts?

As the 2000s unrolled, in my newsletters - Marty’s News and Notes – in live addresses to state associations, and my writings for the Merchandiser or MHProNews, I continually warned of the consequences of the industry doing nothing to mend those battered parts of the industry’s operating model.

Some responded.  But too few did something right. I got tired of saying the same old, same old. How’d doing nothing to fix the obvious industry model deficiencies work out for us? We face much the same road today.

Not the MHI plan, but our industry’s ‘other image campaign’ is being set by stories of park closures. The manner in which very financially fragile people are being mistreated in the eyes of the public. That’s what rules the public discussion regarding MH today.

Those lovely news accounts of “Have you seen the great new manufactured homes” they built today certainly give us comfort, but it is thin gruel.

In the end, the crying elder being ejected from their closing community will win the perception battle.  That’s Pyrrhic victory...against us.

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Note: captions and images were added by the editor, as is customary.

We are hopefully about to undertake a new chapter of lending, as the GSEs bid fair to tackle chattel lending on MH.

Surely safe lending is a primary goal for them, but they also have goals of helping people buy their homes and keeping them in them. Might be impressive if we made some moves to further their goals. ##

 

(Editor’s note: as Marty’s thoughtful column suggests, there are states that provide some of the very safeguards that he thinks should be more universal. Other perspectives are welcome.)

 

marty lavin jd manufacturedhomefinanceexpert DailyBusinessNews mhpronewsMARTIN V (Marty) LAVIN
att'y, consultant, and expert witness

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