Dealer wants Cash up Front

[lifezgrt]

I live in California and have a friend who has been working through LA County's permitting process for over a year to install a manufactured home on a parcel of land that he owns. He had previously selected a home through a local independent dealer for Palm Harbor Homes and put down a deposit with them.

Now that he has gotten through the permitting process, the local dealer informs him that they are unable to get short term financing, and if he wants his home he has to provide the cash up front for the full cost of the MH ($117,000). He has financing lined up but they won't fund until the home is on the lot and set up.

He has come to me asking for a short term loan for over $100,000 which I can do,but with the shaky fianancial condition of the local dealer and of Palm Harbor (they are losing $10 million per quarter according to their SEC filings) I'm concerned about something happening between giving them the check and having the MH set up on his lot.

He does not want to start over with a different model of MH because then he would have to go back to LA County and who knows how much longer before getting a new permit.

Has anyone else run into this and how did you resolve it?

Thanks,

Jim

[rmurray]

Do you know why the loan was denied? Could it be the loan source knows something you do not. Construction mortgage companies investigate your friends credit and income situation, the strength of the long term mortgage company, the builders strength and all details of the future possible closing (such as appraisals, documentation required). All they care is all goes as planned and the get their money and interest in a timely fashion. Most dealers who offer long term mortgages have numerous sources for construction money. Even if there was a lender the mortgage would be closed to an escrow account with strict draw schedules. Usually 10 to 20% up front as a deposit another percentage when land prep is done, more once the home is built and ready for delivery. They ALWAYS hold the last 20 or so percent till the home is complete, inspected and ready for occupancy. Dealers understand these terms and HAVE to live with them.I am a bit surprised because Palm Harbor does or did have a mortgage company who did these loans (Countryside Mortgage). Maybe they are gone..You are right to be cautious. The concerns you mentioned are real. If you want to proceed to help your friend, you should get VERY high Quality legal advise from a skilled real estate attorney in your area. Under NO circumstance should your friend front ALL the money up front. A strict draw schedule should be acceptable to any legitimate dealer. Some dealers avoid this step by doing a home only mortgage that the final lender pays off for long term finance..Of course these are harder to qualify for and will require 10 to 15% cash down up front..Since you have 100K that you can consider for this loan, I assume you have worked hard saved and watched out for your money..You are right to be concerned..Good Luck. Maybe others will chime in as well..

[David Oxhandler]

I agree with Mr Murray, You should be very concerned about 100% pre-payment. It is never a good idea as it removes not only your control over events but the dealers prime motivation for completing your project in a timely and honorable manner.

CountryPlace Mortgage is a division of Palm Harbor that is very much alive, well and financing the purchase and installation of Palm Harbor Homes. Ask for documentation explaining why they refused the mortgage or minimally ask for a copy of your friends credit report. Even if the credit history is excellent can they afford to budget for the additional monthly expense of your loan?

Your desire to help your friend is admirable but if the folks that are in the business of lending money to sell their own product have turned down the deal you better understand why. Moving forward you may find your friendship changes dramatically when it includes long term monthly payments. When I purchased my home I was in love with the lender. Over the years of making payments that love turned to resentment. This is an inevitable feature of human nature.

[lifezgrt]

Thanks for your help. My friend has a commitment from a mortgage company to finance the home, but they will not fund until the home is sitting on his lot. My friend is only asking me for a short term bridge loan for a few weeks, but I still have concerns of something going wrong along the way.

The manufacturing arm of Palm Harbor wants 25% up front to start construction and the remainder before the home leaves their facility. My assumption is that this is standard procedure and that normally the dealer will front this money to the manufacturer (minus the deposit from the buyer) until the home is delivered and set up and the mortgage company then delivers funds to escrow and the dealer is re-imbursed. I think that was the plan in my friends case, but the dealer doesn't have that much cash and isn't able to get short term financing like they previously could do.

They provided Palm Harbor the 25% down yesterday - my friend put up $20,000 and the dealer $15,000. Right now the plan is for me to provide a cashier's check for the balance of $106,000 and my friend will go to Tempe where Palm Harbor is located at the time the MH is completed. He will inspect it and if OK will hand them the cashier's check and they will release the MH to be trucked to the site. Within a week after the MH is set up the mortgage company will fund and I will get my money back.

The main risk that I see is something happening while the MH is in transit. Of course the trucking company has insurance, but knowing how insurance companies work it could be several months to get our money.

My friend is going to execute a Quitclaim deed to his property in favor of me that I will hold and not record unless I don;t get my money as agreed or if something were to happen to him between the time I provide the money and when I get it back

Am I missing any other risk here?

Thanks!

Jim

[Celtlund]

Listen to what Murray and David are telling you. They are the experts on Manufactured Homes and have been in the business for many years. They will not steer you or your friend wrong.

[David Oxhandler]

lifezgrt -

Sounds like you have considered most of the possibilities for loss. It is highly unlikely that anything would go wrong on the road or during the installation. Even so, I prefer to keep Murphy's Law frustrated.

Your friends loan wont be funded prior to the home being approved for occupancy. There are any number of factors that can turn the installation into a prolonged series of inspections corrections and re-inspections. Make arraignments to withhold some of the dealers money to insure the performance of his field contractors.

In most states while that home is on the transporters hitch it legally "belongs to him" and he is responsible for any damage and liability. You should still request a certification of insurance from the transporter. You need to be sure that he has adequate coverage to insure your freight, and to know who to talk to in the event of any problem. This is a standard request anytime a driver starts making deliveries for us, and will not be unexpected.

It is often next to impossible for a homeowner to get insurance for a manufactured home while it sits in the field prior to installation, inspection and certificate of occupancy. If that is the case, ask about the possibility of coverage for the home under the dealers inventory insurance between delivery and certificate of occupancy.

The quitclaim deed is a sound plan. I would recommend a written contract with your friend, prepared by a real-estate attorney. It is admirable that you are willing to assist your friend... but you are talking about a ton of hard earned cash. It is best to let a third party professional draw up an agreement listing everyone's obligations and remedies along with an anticipated time table.

[rmurray]

Most dealers have floor plan funding to pay for inventory sold or stock..Manufacturers will NOT build a home for a dealer until he has a commitment from them. Once to the dealer location homes must be paid off by the dealer the day of delivery. That dealer should have insurance covering the home and associated liability while in his possession and during the set up process. The fact that your friend can raise 20K makes me wonder more why this "bridge loan" could not be worked out. Do NOT pay Palm Harbor for any costs of the installation including a/c, land prep, permits,underpinng, decks and steps, plumbing hook up or on site labor costs. None of these are supplied by them. costs vary by location (from what I have seen here CA is the highest of all) but here in GA it would not be unusual for these to run about 20K for a multi-section home. If the dealer did have a mortgage company bridge loan he would HAVE to live with a draw schedule that withholds money (usually 10%) until the occupancy certificate is issued by the county or city. To get that money the home MUST be complete and since in most states subcontractors who do not get paid can come back to the home owner for payment, banks often DEMAND proof of payment for ALL labor and materials used on the job. Since by your own admission the dealer seems under funded I would be concerned about that as well..The legal pitfalls are many. I hope it is clear you need competent local legal advise. Your friend should be more than willing to pay for it to protect both you AND him..GO FOR IT,,

[trmimo]

It sounds as though this dealer has already gone broke. It is likely your friend will experience difficulty getting the home completed as the dealer probably can't pay for that either. Also, don't expect the dealer to be around long enough to stand behind the installation warranty.

[lifezgrt]

Thanks everyone for all of the helpful advice.

Actually my friend has lined up his own contractor to set up the MH, who he will pay directly. In this case, the dealer is nothing more than a middle man - my friend tried to deal directly with Palm Harbor but they said they can only sell through a dealer.

He has insurance on the home through State Farm. He says the policy covers it "during construction" (not real sure what that means on a MH) - I haven't yet seen it but he is going to get me a copy to review.

Thanks again,

Jim

[David Oxhandler]

Yipes!

I wonder how the friend is going to know what is going on during the installation, what is being done right and where the corners are being cut? Has he has any experience working sub-contractors before ?

In most cases the dealer performs as the General Contractor and makes sure that the field work is done correctly and everything proceeds in a orderly and timely fashion.