Re: mobile home title - Posted by Ernest Tew
Posted by Ernest Tew on May 13, 2000 at 08:01:26:
When financing a mobile home, you could transfer title to the buyer’s name and record a lien against the title to secure the loan. However, there are two major problems that you should be aware of:
As a dealer (one who acquires property for resale), you will be required to pay income taxes on the entire profit–even though it may be received over a period of ten years or more. The ways around this problem can become complicated.
If you are in a state that charges a sales tax on the home, such as Florida, you might find most of your buyers’ available cash going to pay the sales tax, leaving little for a down payment. Even if you are willing to accept a token down payment and finance the rest, it will increase the buyer’s interest cost and monthly payments.
We avoid the problem by entering into a net lease with an option to buy (two separate documents). When all the terms are taken together, the customer has the same rights and responsibilities as a buyer. Sales taxes can be deferred until the option is exercised, at which time the tax will be lower due to the lower option price.
In the meantime, all the available cash can go to the seller with the “buyer” getting credit toward the purchase price. As a result, the buyer pays less in interest while monthly payments are reduced. Once buyers understand the benefits, no one ever objects.
CAUTION: Regardless of what you call the documents, if the transaction too closely resembles a sale, it will be treated as a sale in the event of an audit. The “buyer” will have to pay the sales tax and, possibly, a penalty. The seller will be obligated to pay taxes on the entire profit in the year of sale, even though the home may be financed for ten years or more. If discovered after the fact, the IRS could impose interest and severe penalties on top of the tax that should have been paid.
Chapter XIV in my book explains in detail the problems and a proven solution. The accompanying computer disk includes Lease and Option forms that have been used successfully for several years by people around the country.