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Study: Repossession, foreclosure protection on mobile homes inadequate

February 18, 2005
CONTACT: Suzanne Henry
(512) 477-4431, ext. 121
Study finds repossession and foreclosure protections on manufactured homes to be inadequate
Mortgages on most manufactured homes offer less protection than those for conventional homes
Austin, TX –Most manufactured housing is financed in a way that does not afford as much foreclosure protection as conventional home mortgages, according to a report just released by Consumers Union, publisher of Consumer Reports.
The report states that manufactured housing does not offer as much protection because it is usually financed with personal property loans. When borrowers default on a personal property loan, their homes can be repossessed in a similar way as cars can be.
The report cites the case of an Alabama homeowner who was pulled off the lot with the person still inside. This happened to Barbara Smith as a result of falling behind on loan and lot rent payments. “[I got] my belongings out of the home and while I was… the guy that actually drove the home came to the door and he said, ‘get out of the home’… I came to the front door, the steps were missing… I jumped out of a moving home,” said Smith.
With conventional home mortgages, the laws surrounding foreclosure give more protection to the borrower. The lender is usually required by state law to give the borrower notice of the upcoming foreclosure and plenty of opportunity to pay the default to take back the home.
When a consumer buys a manufactured home, he or she often starts out owing more money on the loan than what the home is actually worth. If the home gets repossessed, the borrower can be sued for deficiency. If the home is sold for less than the amount owed on the loan, the consumer ends up with a debt for a home they no longer own.
In the past four years, default and repossession rates of manufactured housing have been so large that the resale value of the homes has plummeted, according to the report. Too often, the loss in value of these homes is passed onto consumers as deficiency judgments.
“State laws should be constructed to protect consumers whose individual financial crises are exacerbated by systemic problems in the market outside of their control,” said Suzanne Henry, a policy associate with CU’s Manufactured Housing Project.
Regulation of foreclosure and repossession through state law can be changed to provide more consumer protections by:
• Self-help repossession — Limits applied to self-help repossession, like requiring notice of a default on the home loan ahead-of-time, would give the borrower more time to make up the defaulted payments and maintain possession of the home. Also, requiring the lender to get a court order to repossess the home gives the homeowner an opportunity to challenge the default and repossession.
• Right to cure – Making “right to cure” laws apply to all home loans, personal and real property, would allow manufactured homeowners to catch up on missed payments and avoid repossession.
• Anti-deficiency laws – States can limit the ability that lenders have to sue for an unpaid balance on a manufactured home loan, which would benefit homeowners whose primary residence is their manufactured home. If the home were to be repossessed, there would be no further action allowed to collect on the debt. As a result, the consumer would not have to keep paying on a loan for a home that he or she no longer owns.
• Homestead exemptions – Anyone should be able to declare their primary residence a homestead, whether it is real property or not. Homestead exemptions in state law would pertain to manufactured homes not attached to land and financed as personal property. The homestead exemption statute would protect against repossession by creditors (bankruptcy or judgment) and establish foreclosure protections similar to those given to real property owners.
• Judicial foreclosures for power of sale contracts – Lenders should be required to go to court before they can foreclose on homes financed by mortgages or deeds of trust that contain a power of sale clause. Doing so would require notice of intent to foreclose and notice of sale, give the borrower the right to cure the default, and enforce limitations on deficiency judgments.