In this article, we’ll share EVERYTHING you need to know to find out if your park is legal and conforming...
/\ Warning #1: you will learn something to ask you did not think of as part of your Due Diligence.
/\ Warning #2: this info will be as valuable for the experienced investor as it is for the rookie buyer.
Catching non-conformity BEFORE closing:
We'll approach this part of due diligence by first sharing what to ask for and how. Ideally, the city questionnaire is kicked off (emailed to all appropriate city/county contacts) within a day or two of starting your due diligence clock.
/\ Warning: Getting the final answers from the city can take anywhere from a week to over a month, sometimes longer.
- The Rookie buyer: To put some perspective on this, of what not to do, is call the county or city to ask them over the phone if the park is good as a mobile home park – that is the #1 rookie mistake and what many of us did when we started buying our first parks.
- The Pro buyer: Fast forward, you now must ask over twenty of the right questions with answers on paper (always get it in writing!) to protect your investment. Not to be overly dramatic but kiss your investment goodbye if it happens to be one of the parks with a ton of gotchas/fine print that you had no idea about.
Here are the critical, DEAL-BREAKER items you need to ask…
Rule #1, ask the right questions
1. Park Expiration: Say what?
That’s right, your park may expire to continue use as an MHP. A sunset provision is not a tropical cocktail you get from your title company as a gift for closing a deal. Also called “sunset law”, it’s a clause in the code that expires automatically on a specified date and cancels out an entire or section of law. Conditional use or special use permits can be similar if they have an expiration date and/or DO NOT transfer to new ownership. You must ask the right questions. How would you feel if you find out that your land use or zoning changes down the road and you have zero recourse? Sunset provision definition
2. Reconstruction Clause:
While this falls under asking about how nonconformity can affect land/homes/structures/parking, unless asking about it specifically, you may not know. We’ve uncovered so many different replacement restrictions such as, how much damage occurs to an MH/structure to void replacement, square footage requirements, time that a structure can be vacant before it is LOST forever, etc. How will you feel if you lose homes to flooding or another event to find out that insurance can’t help if you are not allowed to replace them? Bummer.
3. What’s the Zoning and is it Legal:
Asking what the property is zoned as is the simplest of all questions and does not answer any usability details. You can look up zoning yourself by pulling up a zoning map or looking at the zoning layers using GIS mapping. Being zoned as a mobile home park does not protect your investment if the non-conforming items destroy your ability to infill (bring in homes to fill vacant lots) and replace current homes should they encounter a fire, damage, etc. Also ask about what the legal lot count is along with a copy of the non-expired operating license (if applicable), for ALL parcels. How will you feel if you find out that being zoned MHP doesn’t mean diddly squat?
Asking what the front, back, and side setbacks are important but open to interpretation and can KILL your deal if you have smaller lots. Specifically, there can be different setbacks for the perimeter, the entrance, and for structures other than mobile homes. Additionally, side, or side-to-side can be interpreted differently. For you to think about: are the answers that come back crystal clear about the side setback being the distance from home to home or is it from home to the imaginary lot line? How will you feel if you realize after closing that none of your lots meet the side setback, because you assumed that the answer was home to home?
This is one of the top three questions to ask because it should reveal what the restrictions are if a home cannot be replaced. Simply ask, can all homes be replaced without restriction? Often, you will NOT get a yes/no answer. Instead, you may get a reply with a link to the code. This is so that you can figure out what the restrictions are and interpret the code yourself. Run away! Just kidding, see Rule#2.
6. Home Age:
This should fall under asking about replacing homes without restrictions. However, if you don’t specifically ask, you may get an answer that homes can be replaced fine. How would you feel if you find out later that no homes older than 2010 will be permitted to be moved in?
7. Occupancy Permit:
As a rookie, this may seem like a basic question that could even be skipped. But, for the expert that has purchased hundreds of parks, the cost for an occupancy permit could be so high at times that it can blow the budget. To be specific, this is not about the occupancy of a park, it is the occupancy permit for an MH. Many cities and states across America require an occupancy permit for existing MH (mobile home) or to move an MH in. If for example, this local occupancy permit requires a fire, foundation, wind zone, structure, or lot inspection then it could be thousands of additional dollars per home. Some occupancy permits can trigger other big costs if there are a lot of non-conforming items identified that must be fixed. How would you feel if $100,000.00-$500,000.00 was added to your infill budget as a surprise?
8. Non-conformity and Triggers:
There are many non-conformity questions and possible triggers. Other questions we ask that can help expose nonconformity are about overlapping codes (districts/neighborhood), variances/special use, RVs, and fixed structures/mini-homes. There are also many actions that can trigger big costs and/or non-compliance. How would you feel if you find out that expansion/adding a lot makes the park non-legal/non-conforming, that an expired park license prevents you from getting it renewed as the new owner, or that a new owner triggers a complete inspection that results in $550,000.00 of required infrastructure fixes (true story)? Ask us how we know.
9. Code Compliance:
Asking about current and historic code violations could reveal much more about the park’s history and conditions than you expect. How would you feel if you found out later that simply asking about historical code issues would have revealed that some underground infrastructure issues (not visible by inspection) were band-aided but are still a problem?
10. Other minor questions:
Don’t forget to ask for all state/city/county permits, licenses, and inspections required per code. Confirm flood zone revisions – experienced buyers mitigate their flood plain risk by evaluating drainage infrastructure, topography, and asking about revisions. Being in a flood zone is often not a deal-breaker. Ask about pad types, special assessments, above and below ground utilities ownership, streetlights, and copies of all applicable ordinances. Have any to add?
So, ask these questions, get answers, and done, right?... Not so fast, that is not the reality of how it plays out.
Rule #2: follow-up, follow-up, and follow-up
- How many times? On average, our team follows up three+ times to get the right answers.
- Why??? Because it is normal to get back lazy answers, un-answered questions, wrong answers that seem to contradict the obvious, vague answers such as “likely/unlikely/maybe/sometimes/probably/should be/not sure/reference the code/hasn’t been an issue”, and downright bizarre answers such as “I don’t know, the new director is out on maternity leave”.
- Authority: To protect your investment, the answers should be in writing and from a person that is the person in charge of the zoning/land use department. This may be one person, or many department heads based on size of city. If the zoning and land use changes, your only recourse may be that you had usability answers in writing at time of purchase which established what you were purchasing. Many usability problems can be solvable by talking to the city about what you purchased and that you are solving a low-income housing crisis. If push comes to shove, an attorney may be needed to protect changes contrary to what you purchased on paper. We accept email as an acceptable response in writing if it has a detailed signature block, but some investors may prefer letter head.
- Interpretation: This is perhaps the #1 most important part of due diligence for park compliance questions to the city. After asking the right questions, the real work begins.
What do you do when answers come back in bad shape?
a. Don’t accept any ‘crap’ answers, push for all answers to be black or white.
b. Don’t accept laziness, push for specific code references to everything.
c. Don’t’ settle. One bad answer can blow your deal.
What did we learn besides that fact that approaching the city and/or county the right way with questions can be a job in itself?
- Rule #1: Ask the right questions (usually 20-30 questions). Some questions may vary based on how the property is set up (survey/alternative uses) and utility types (city vs private). There are additional questions to ask for private utilities.
- Rule #2: Follow-up, a lot, as needed.
- Rule #3:Bonus rule… Use the right resources. There are a few companies that specialize in providing a zoning report only. This may also be required for commercial lending, especially if refinancing portfolios. However, these companies fall short of interpreting the answers, especially when follow up is needed. You want to find out on the front end that you have a problem, NOT when it comes time to refinance, and your zoning reports come back with problems that can’t be resolved or make your loan much worse than you expected.
Did we forget something?
Please tell us about it or share your story about something that hurt your deal or feelings😊.
To quote Free Guy, “don’t have a good due diligence, have a great due diligence process”.
Need help with due diligence? We are here when you need us, give us a call.