RTO Contracts: Breaking Them Down

In some states, RTO contracts are illegal. In states where they are legal, they may go by other names. But, they’re functionality remains about the same. About a decade ago, the federal government passed a law against predatory lending. This was to combat high interest loans aimed at yielding exorbitant payments.

This law was not intended to impact the mobile home park industry. But, by pure unfortunate happenstance, it managed to effect MHP heavily. That’s because RTO contracts found themselves with too many parallels to predatory contracts. We’ll dive into how this has changed sellers’ approaches to selling parks.

The Federal Laws On RTOs

RTO were an unfortunate fallout of the law in questions. Here’s how the law works. Unlicensed landlords are only allowed to sell a minimal amount of homes in a year. Go past this number, and you could face legal consequences. “The state will clamp down on you if they find out about it,” says Glenn.

That means that you have to get licensed as a mobile home dealer. This is the only way you can sell more than a couple homes per year. Someone within your park has to have that license. If not, the municipalities will come down on you. It’s best to avoid having to defend your position altogether!

Let The States Decide

Some states are actively on the lookout for such behavior. Let’s say you’re an unlicensed park owner and you buy 5 homes. You’ll most likely be receiving a call from a regulatory office. Be prepared for questions about your intentions for those homes.

They’ll be wanting to know if you’re planning to rent, sell, etc. Be sure to have all of your ducks in a row. Keep decent records of all of your dealings, as you’ll be expected to answer for them.

Inheriting RTOs

There is a chance as a new buyer that you may purchase a park with existing RTOs. You don’t have anything to worry about, though. “As a buyer, you don’t know what you don’t know,” Glenn reassures. You can’t control if the original owner instituted them.

But, that doesn’t mean you have zero accountability. As with any situation like this, you’ll want to undergo an extensive discovery process. This allows for you to be aware of and navigate any surprises. If you discover any RTOs, ask a litany of questions to ascertain as much info as you can. If they’re within the limit, or if they were licensed when they sold them, all is well.

Asking The Right RTO Questions

You don’t have to understand too much in this regard when buying a property. Just make sure you know how to they came to be. Knowing the tenants’ vetting process ensures RTO note completion. From the valuation standpoint, you’re generally giving them a Gross Rent Multiple (GRM). This relates to the number of years left in the home.

The MHP Expert

Have more questions? Reach out to The Mobile Home Park Expert Today! We can help you along your MHP journey.

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