Balloon Payment Looming
Ask the Real Estate Lawyer: Real Estate Law Q&A
REM #LAW 642
By Ilyce R. Glink and Samuel J. Tamkin
Summary: A reader owns a home that was seller
financed and is having difficulty finding a new lender. Ilyce and Sam discuss
HUD regulations in regards to financing and how it is time for this homeowner
to hire an attorney.
Q: A couple of years ago my husband and I bought a manufactured home that was
built in 1971.
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Our agent, who is also a loan officer, advised us not to apply for a loan when
we purchased the home. Instead, the seller originally gave us financing for
5 years. But we have not been able to refinance the property due to the home's
age and HUD regulations of pre-1976 manufactured homes.
Our real estate agent and the seller knew about the regulations that would
make it impossible for us to get financing. The seller will not allow us to
extend our financing. We have tried various financing options and no one will
lend to us.
Is this something that should have been disclosed to us prior to purchasing
the property? We are now at risking of losing our home to foreclosure if we
do not make the balloon payment to our seller at the end of the five years.
Do you have any suggestions for us?
A: From a practical standpoint, your manufactured home predates the Housing
and Urban Development (HUD) rules and regulations that relate to manufactured
housing. Most lenders would prefer or require the home to have been built in
accordance with those rules and regulations.
But while your home predates those requirements, it’s possible that your
manufactured home actually meets the specifications set out by HUD. The only
way to find out is to get a list of the specifications from the HUD website
(HUD.gov). You can also contact the Manufactured Housing Institute toll-free
at (800) 505-5500 for more information.
Also, as an alternative to larger mortgage lenders and brokers, you should
try to get financing from your local community bank, savings and loan and even
your credit union. In some cases these institutions have a vested interest in
the community and may be willing to lend you money on the home. You should particularly
talk to someone who knows you. Try the bank where you have been a customer for
the past few years.
You didn’t include information on how much land you bought along with
your mobile home. But if you have a sizeable amount, it may be possible to get
a loan against the land itself, not the home. While Fannie Mae and Freddie Mac
do not do “raw land” loans, many other lenders do.
The real issue is whether your agent and seller were required to disclose to
you that the fact that the home was manufactured prior to the HUD regulations
and that it did not conform to those regulations.
If the real estate agent gave you specific information to keep you from finding
out that you would never be able to obtain financing, you may have a case against
her. Proving fraud or misrepresentation may be difficult, but depending on where
you live and what the requirements are for disclosing this issue to you, you
may be able to sue the seller for the failure to disclose. It’s also possible
that the seller misled you. A real estate attorney can guide you further.
If your home does fall short of HUD regulations, try to find out if there’s
anything you can do to bring it up to code.
If you can make these modifications that would allow you to conform to regulations,
you may be able to prove that your manufactured home is “real property”
versus “chattel,” which is the category that cars and boats fall
If the home can’t be brought up to date and you find that you can’t
get the financing, you will need to contact an attorney to assist you in dealing
with the seller. You may be able to negotiate an extended repayment of the loan
on terms that would not require you to refinance the home in the future or you
may have to negotiate a different arrangement with the seller.
You won’t know which way to proceed with the agent or seller until you
discuss your case with an attorney and bring him up to date on all of the issues
surrounding your purchase, the conversations you had with the broker and, even
the seller and a review of the documents relating to the sale of the home to
Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce
R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your
Home Faster and For More Money In Any Market. If you have questions for
them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
or contact them through Ilyce’s website www.thinkglink.com