B5-2-05, Manufactured Housing Legal Considerations (11/06/2024)

Closing instructions must advise closing agents to obtain the required documentation necessary to ensure that the manufactured home is attached to a permanent foundation system on the land, thus becoming part of the real property.

If a closing agent is not available to perform this action, the lender can rely on the certification of completion completed by the appraiser.

In addition, where state law provides that a manufactured home may be exempt from certificate of title requirements (for instance, where a home is attached initially to a permanent foundation system), such closing instructions must instruct the closing agent to ensure that the manufactured home qualifies for exemption from certificate of title requirements, including monitoring of property installation procedures and the related documentation, and to provide the lender with documentary evidence of that for retention in the loan file.

Where state law allows for the elimination of the certificate of title, the closing instructions must instruct the closing agent to perform all necessary procedures to:

• assure that the certificate of title to the manufactured home is properly retired, and

• provide the lender with documentary evidence for retention in the loan file.

If there are post closing items related to conversion of the manufactured home from personal property to real property, the lender should consider use of a properly circumscribed power of attorney from the borrower that may be used to complete the post closing items. All post closing items must be documented in the loan file and, any relevant documents received after closing must be included in the loan file.

The table below provides conditional requirements pertaining to the manufactured home certificate of title.

Note: Given certain provisions of Mississippi law and the practice in the state, the requirements in the last row of the above table apply to manufactured homes in Mississippi. (The other two options in this table do not apply.)

To be eligible for purchase by Fannie Mae:

• A manufactured home loan must be secured by a perfected lien (or liens) on real property consisting of the manufactured home and the borrower's interest in the land.

• The manufactured home must be legally classified as real property under applicable state law, including relevant statutes, regulations, and judicial decisions.

To assist lenders in originating manufactured home loans in various states, Fannie Mae publishes information on titling manufactured homes as real property. Note, this information does not constitute legal advice; lenders must consult their own legal counsel. See Titling Manufactured Housing.

The following requirements are also applicable:

• The owner of the manufactured home must own the land on which the home is situated unless the manufactured home is located in a condo or PUD project subject to a ground lease approved by Fannie Mae's Project Review Eligibility Service (PERS).

• The manufactured home must be attached to a permanent foundation on the land and comply with state and jurisdictional requirements for permanent affixation.

• A mortgage, deed of trust, or security deed must be recorded in the land records and must identify the encumbered property as including both the home and the borrower's interest in the land.

• If applicable state law so permits, any certificate of title to the manufactured home must be surrendered to the appropriate state government authority.

• If the certificate of title cannot be surrendered, the lender must indicate its lien on the certificate.

Fannie Mae prefers that a loan on the manufactured home and the land on which it is situated be secured by a single lien.

However, it is recognized that some state laws do not provide for a single lien on both the manufactured home and the land. Therefore, a loan documented by a lien on the borrower's interest in the land evidenced by a mortgage, deed of trust or security deed and by a real property lien on the manufactured home evidenced on the certificate of title or other document is acceptable.

Note: Loans in which there is a chattel lien on the home plus a real property lien on the land are unacceptable.

The mortgage must be covered under a standard real property title insurance policy that insures that the manufactured home is part of the real property that secures the loan.

American Land Title Association® (ALTA®) Endorsement 7, 7.1, or 7.2 or any other endorsement required in the applicable jurisdiction for manufactured homes to be treated as real property must be included in the file.

Fannie Mae prefers lenders to use the standard Fannie Mae Uniform Instruments (see Security Instruments).

If the Uniform Instruments are not used, then the lender must adhere to the following requirements:

• A single note must be used evidencing all the debt related to the land and the home, and a mortgage, deed of trust, or Georgia security deed securing such indebtedness (plus the certificate of title if state law so requires).

• The note used must provide the nonstandard document warranties that are referenced in  A2-2-03, Document WarrantiesA2-2-03, Document Warranties.

Loan documents are not acceptable if they:

• state that the home is personal property or contain other words to that effect;

• state that the parties do not intend to attach the home to a permanent foundation system on the land, or contain statements inconsistent with that intention;

• unless required by law, provide that rights of holders in due course are waived, or with other words provide that an assignee note holder may be held liable for claims the borrower may have against other parties; or

• include consumer finance paper which combines the note and security instrument in a single document or a retail installment sales contract.

The security instrument must:

• state that the manufactured home is an improvement to the land and an immovable fixture, or include similar language as may be required by applicable law to assure, to the greatest extent possible, that the manufactured home will be treated as real property under applicable state law. If applicable law provides specific obligatory wording, such wording must be used; and

• include a comprehensive description of the manufactured home and the land in the property description section.

  The description must include the serial or VIN number (or the serial number or VIN for each unit if the home is multi-width), make, model, size, and any other information that may be required by applicable law to definitively identify the home.

  Note: The serial number is located on the HUD Data Plate located on the interior of the home, usually near the electrical box. In addition, the serial number is generally cold-stamped on the frame front cross member of each transportable section.

  Some jurisdictions may not allow any information in the property description section of the security instrument other than what is customary for other real property transactions. If this is the case, then an addendum may be used, which must be attached to the security instrument and included in the loan file.

The borrower(s) must sign an Affidavit of Affixture (which must be in the form prescribed by applicable law, if any) that acknowledges their intent for the manufactured home to be permanently part of the real property that secures the mortgage free of any personal property security interest. If the manufactured home was previously converted from personal property to real property in accordance with applicable law, the Affidavit is not required by Fannie Mae unless applicable law requires a new Affidavit. Where applicable law does not require an Affidavit to be recorded, it is preferable that an Affidavit be recorded.

Note: If state law requires a Uniform Commercial Code (UCC) filing in order to perfect a security interest in a manufactured home, the lender must make such filing in any and all appropriate locations.

Titling is complex and further complicated by the lack of a federal standard. Consequently, all states devise their own laws resulting in diverse approaches to manufactured home titling and lien perfection. The variety of approaches is particularly challenging for lenders originating manufactured home loans in more than one state. Laws of some states do not clearly provide for a single lien on the manufactured home, together with the land on which it is situated, but instead, for example, require that the lien on the manufactured home be evidenced by notation on the certificate of title.

While the laws of some states establish a procedure for surrender of the certificate of title when the manufactured home has become so permanently affixed to the land that it has become real property, the laws of other states do not allow for the elimination of the certificate of title to a manufactured home regardless of the degree of affixation of the home to the land. In these states, the lien on the land (evidenced by the mortgage, deed of trust or security deed) may be legally distinct from the lien on the manufactured home (evidenced on the certificate of title), though both are liens on real property. In this instance, the manufactured home is often treated as an “immovable fixture” (personal property that has become so permanently attached to the land that it has become real property).

Research on state laws affecting manufactured housing liens indicates, more specifically, that in order to document a lien on a manufactured home that is real property, state laws take several approaches:

• surrendering the certificate of title when the manufactured home is permanently affixed to the land;

• statutory, regulatory, or judicial authority for recognizing a manufactured home as part of the real property, without surrender of the certificate of title. A few states also require UCC filings; or

• recognizing the manufactured home as real property without issuing a certificate of title when the unit is affixed to the land.

Most states permitting manufactured homes to be treated as real property without first being titled as personal property also have procedures for issuing a certificate of title and then surrendering it.

State law that does not provide for surrender of the certificate of title may pose some additional risk to the lender and Fannie Mae.

Under the UCC, as adopted in almost every state, a lien evidenced on any outstanding certificate of title will have priority over a lien on real property to which the manufactured home is affixed, which is evidenced by a mortgage, deed of trust, or security deed.

However, Fannie Mae believes that if a lender follows procedures tailored to take advantage of all protection offered under existing state law—including taking steps to assure that no certificate of title still exists that bears evidence of any lien securing any other loan—sufficient legal protection is afforded.