In my first article in this series, I discussed the methods under which a mobile home park owner can force a homeowner out of their home. The economic impact to the homeowner can be devastating and a lifetime’s investment can be lost in the blink of an eye. This is why mobile home rent control measures are so important.
As we discuss, the majority of mobile homes in the North County area are in rental parks; the home is purchased and then space rent is paid to the mobile home park owner. The amount of rent is directly related to the resale value (or equity value) of the mobile home.
Let’s consider this scenario: Grandmother Jones is living in the home she and her husband purchased early in their marriage and the mortgage has long been paid off. When Grandmother Jones becomes ill, and her insurance is not sufficient to pay for her medical bills or long-term care, she has the option of refinancing her home, taking our a reverse mortgage, or adding a second mortgage on her home to convert the equity value of her home into cash. Perhaps, even in the most extreme of conditions, Grandmother Jones would be able to lease her home to someone while she was in long-term care so that there was a bit of income coming to her.
Now, let’s put Grandmother Jones in a mobile home under similar circumstances. First, in addition to finding a resource for paying her medical bills and/or long-term care, she would need to continue to pay space rent. She possibly could refinance her home but finding a mortgage lender to lend on a mobile home is increasingly difficult. She cannot take out a reverse mortgage on a mobile home and she would be unable to lease her home to someone for longer than six months under State Law. The remaining option to be able to convert her equity into cash would be to sell the home.
As strange as this scenario sounds, it is actually more common than one would think. As savings accounts dwindle and cost of living increases, the equity stored in the resale value of your home (whether single family or a mobile home) is a means to cash out for emergencies. In a single-family home, one of the options listed above will provide the cash. For a mobile home, selling is the only way.
This is where rent control protections come into play.
Time for a little math. The current trends say for every $1.00 of rent space increased a mobile home loses $100 of equity. So, if Grandmother Jones paid $100,000 for her mobile home and the space rent is $500, she has an equity (resale) value of $50,000. On a personal note and to prove the point, I purchased my mobile home for $110,000. Space rent is approximately $525/month and, at last valuation from the County Assessor, my mobile home is valued at approximately $60,000.
If the value of a single-family home was diminished so greatly by your city’s actions, you would replace the council members with those who understood how their actions impact your home’s value. Or you would possibly move to get away from bad decisions affecting your home’s equity. Unfortunately, there are very few council members who understand the dynamics of mobile home values and the impact of space rent and, as Justice Kleinfeld wrote in the Guggenheim v City of Goleta case, “Because the owner of the mobile home cannot readily move it to get a lower rent, the owner of the land has the owner of the mobile home over a barrel.”
If Grandmother Jones decides to sell her home, then her troubles are only compounded. The automatic loss of equity which happens with the current space rent payments would be combined with the possibility of park owners raising the incoming rent for perspective buyers to astronomic levels. While the incoming space rent might not be a burden to the new owner, they would negotiate a lower sale price because of the high space rent payments. Thereby the park owner has effectively stolen the equity value of the home – a piece of property which someone has paid for and on which they have paid taxes – and transferred it to higher space rents in the future on their investment which is nothing more than a dirt lot.
Mobile rent control measures help to keep space rents low and those measure with vacancy control (a limit on the amount space rent can be increased at the time of a sale) are even more helpful. This is why mobile home rent control measures are so important, especially to seniors and low-income homeowners.
There is always the possibility of a mobile home park owner selling their land for development, though many will not do this because the annual incomes generated are far greater than a one-time sale price. Again, on a personal note, take the case of my particular mobile home park. There are 155 spaces and the space rent for each space is approximately $500. This comes out to $930,000 annually in only space rent. There are other charges for trash pickup, water/sewer, etc. So, the benefits of owning and operating a mobile home park far outweigh the one-time cash influx of a sale price for the land.
While mobile home park owners complain about their costs going up every year and the “burden” under which they operate because of rent control measures, the facts are they have a pretty good deal currently. And, in the case of some park owners (see Dr Yee in the first article), the ability to use the rent increases as a means to scare off potential home buyers and run out current homeowners, only puts more money into their pockets.