Posted by Dr. Craig Whisler CA on April 14, 2002 at 10:50:54:
Jeff, try for the most part, to stick with free and clear mobiles at first. Its hard enough to get good deals on paid off mobiles. You will be 20 times more productive when dealing in free and clear mobiles. Unless you’re a salmon why try to swim upstream, trying buy mobiles that are overencumbered with loans. Its wiser to leave these kinds of deals to the more experienced Lonnie dealers. If the loan is upside down why would you want the deal?
The seller will either have to transfer the loan to some other asset, like a house that they or a friend or family menber owns (the bank would LOVE this) or they will have to pay off, or pay down the loan to the price you want to pay and then just give it to you on a takeover payments basis (more troble than it is worth unless you specifically structure this loan to be fully assumable by your next buyer). It is not uncommon to find an upside loan on a newer mobile that the seller is willing to buy down in order to effectuate a subsequent sale. This might be an example: a mobile worth $30k with a $40k loan on it and seller wants out badly enough to give you $10k to take it over and get it out of his name to save his credit. Such a seller will normally just pay down his loan by $10k and then let you take over his payments. This is NO deal in most cases.
When this happens, and if you own other real estate such as a single family house with enough equity, you might just take the overpayment in CASH from the seller by transfering the loan to your SFR and taking the mobile free and clear. You might do this if you need the $10k cash and don’t want to originate a new loan. I have done such deals at times, and then used the cash at a higher rate of return such as the 50% to 100% you can earn on Lonnie type deals. This type of deal probably should be left to more experienced investors however.
You are correct in surmising that most older mobiles are likely to be paid off.