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Home Foreclosures: 11.2.5 Whether Manufactured Home Is Treated As Realty in Absence of a State Statute

If there is no state statute which specifically establishes the classification of manufactured homes as real or personal property for purposes of security interests, courts must determine whether a manufactured home remains personal property or has become a fixture. If the home remains personal property, then the only remedies available to the creditor are those provided by Article 9 or state replevin law. If, on the other hand, the home has become a fixture, U.C.C.

Home Foreclosures: 11.3.1 Introduction

If a manufactured home has not become real property, the creditor must proceed under Article 9 or state replevin law to retake the home, and its disposition of the home after retaking it is governed by Article 9. This section provides a brief summary of the most important requirements of Article 9, which are set forth in detail in another treatise in this series.225

Home Foreclosures: 11.3.3 Default

Assuming that there is an enforceable security interest in the home, there must be a default before a creditor can repossess.233 The Uniform Commercial Code does not define default, leaving the definition to the parties’ contract.234 State law may limit the definition of default, however, and state or federal law may require the creditor to give the debtor a notice of the default and an opportunity to cure it.235 In addition, if the creditor

Home Foreclosures: 11.3.4 Self-Help Repossession

Article 9 allows the creditor to use self-help to repossess collateral.237 However, self-help is allowed only if it can be accomplished without breach of the peace.238 Breach of the peace is very likely if a creditor attempts self-help repossession of an occupied manufactured home, so many creditors seek a judicial order through a replevin action.239

Home Foreclosures: 11.3.5 Debtor’s Right of Redemption

After repossession, Article 9 affords the consumer the right to get the collateral back by “redeeming” it.243 Redemption requires the consumer to pay the full accelerated debt, not just the installments that were past due at the time of repossession, so it is rarely of use to consumers.244 Some states, however, require the creditor to grant the consumer the right to regain possession of the collateral by paying just the past-due installments.245

Home Foreclosures: 11.3.7 Deficiency or Surplus

The proceeds of the sale are applied first to the expenses of repossessing and selling the home, and then to the debt.250 If there is money left over, the creditor must pay this surplus to the debtor.251 If, as is more likely, the proceeds are insufficient to satisfy the debt, the debtor owes the deficiency.252

Home Foreclosures: 11.3.9 Remedies for Violations of Article 9

If the creditor has not complied with Article 9, some courts hold that it is absolutely barred from collecting a deficiency judgment from the debtor. Others adopt a presumption that the value of the collateral equaled the debt, thereby eliminating any deficiency, but allow the creditor to rebut this presumption.260

Home Foreclosures: 11.5.1 State Right to Cure Statutes

A number of state statutes provide a right to cure defaults prior to acceleration or repossession for some or all consumer credit transactions. The details vary from state to state and are set out in NCLC’s Repossessions.279 Even states that do not grant a general right to cure may have a special statute extending that right to manufactured home buyers.280

Home Foreclosures: 11.5.2 Limited Right to Cure Under Federal Law

Whether a manufactured home is considered realty or personalty, a right to cure the default which supplements or goes beyond state law is potentially available due to regulations of the federal Office of Thrift Supervision.281 Under these regulations, certain manufactured home creditors who want to take advantage of federal preemption of state interest rate ceilings must afford the consumer a right to cure.

Home Foreclosures: 11.6.1 Damages Claims

Truth in Lending claims may be available as defenses or counterclaims in manufactured home foreclosure cases. The federal Truth in Lending Act (TILA) requires disclosures in any consumer credit transaction.289

Home Foreclosures: 11.6.2 Rescission

While Truth in Lending damages are an attractive counterclaim that can reduce the alleged delinquency on a manufactured home, the statute also offers a right to rescind that can be an even more powerful tool to prevent foreclosure. Unfortunately, however, the right to rescind applies to only a small subset of credit transactions secured by manufactured homes.

Home Foreclosures: 11.7 RESPA Defenses in Manufactured Home Foreclosures

The federal Real Estate Settlement Procedures Act (RESPA) can also provide defenses and counterclaims in manufactured home foreclosures. RESPA applies to all loans secured by a first or subordinate lien on residential real property designed principally for the occupancy of one to four families.306 Unlike the TILA rescission right, RESPA applies to purchase-money credit.

Home Foreclosures: 11.8 Defenses Based on State Credit Statutes

Claims and defenses under state credit statutes should also be investigated. Most manufactured home sales are financed and will thus be covered by a state credit statute. If the transaction is set up as an installment sale, with the contract assigned to a financing institution, often there is a retail installment sales act (RISA) or motor vehicle retail installment sales act (MVRISA) that applies.332 If the transaction is set up as a loan, a different statute will apply.

Home Foreclosures: 11.10 Homestead Exemption

Sometimes foreclosure upon a manufactured home is threatened because of a judgment lien rather than a consensual security interest. Whether the debtor can protect the home from judgment execution depends on the language and interpretation of the state homestead exemption statute. In a bankruptcy case, a judicial lien may be avoided to the extent that it impairs the consumer’s claim of exemption under a homestead or other exemption statute.340

Home Foreclosures: 11.11 Workout Agreements

Workout agreements on manufactured home loans have been increasingly possible.351 Loans on manufactured homes were eligible for modification under the Home Affordable Modification Program (HAMP), but that program closed to new applicants in December 2016.352 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted and provided relief for a subset of homeowners facing hardship due to the coronavirus pandemic.

Home Foreclosures: 11.14 Problems Relating to Manufactured Home Parks

Space in manufactured home parks is often at a premium. A home may lose much of its value if it is sold without an assurance that it can stay on the rented lot in the park. Even if a new buyer has a place to locate the home, moving a manufactured home is costly, runs the risk of damage, and accelerates the home’s deterioration even if there are no mishaps in the process of removing, hauling, and re-siting it.

Home Foreclosures: 11.15 Effect of Default on Debt or Rent for Land on Which Manufactured Home Is Sited

Additional issues may arise as to the land on which the manufactured home rests. If the land is owned by the homeowner, the land may be subject to a mortgage or other liens. The mortgage or lien holder may or may not be the same entity that holds the security interest in the home. In either case, the debt for the land needs to be addressed at the same time as a plan is developed to address the debt on the home.