double mortgage on existing home and manufactured home?

We have a piece of property with an an old house and a mortgage. We want to tear down this junk house and put a manufactured home on the property. We would have to have a mortgage on the manufactured house too. Don't want to pay 2 mortgages. What to do with the existing mortgage ? The mortgage company said they wouldn't refinance.

Ken Peters

1 Answer

Ken,

To clarify let's begin with the "home" loan you currently have. This loan is most accurately described as a lien on the real estate you own. While this lien extends to all of the fixtures on the property, including the house, your mortgage is not just a loan on the house, but is a loan on the real estate...the property. The next thing to consider is that the order in which liens on real estate are recorded determine their superiority. So "double" mortgages is not the terminology used to describe two liens on the same property. The lien recorded first would be the first lien and a lien recorded second would be a second lien. The second lien and any more liens on a property recorded after the first would be junior liens to the first lien.

So with that information in mind let's look at what you want to do which is finance a manufactured home on land you own. Assuming the loan you already have on your real estate, the first lien, was made on improved property, including the house that currently exists, your loan agreement probably includes a provision that you must keep the house in good condition and not remove the fixtures or allow them to become "junk." Additionally any improvements you make to the property become fixtures to the real estate and any liens on the property include all the fixtures and improvements even if those improvements were made after the lien was recorded. So if you improve the your property by adding a manufactured home, your current "home" loan is also is a lien on the manufactured home.

A manufactured home implies that a mobile home that is on wheels and has a title is moved to a site; permanently attached to the real estate site; and the title surrendered. This makes the manufactured home part of the real property upon which it is located. In this case any lien on the real estate to finance improving the property by adding the manufactured home would be subject to any prior liens on the real estate...your current first lien for example. A lender financing this improvement would have to be willing to make the loan as a second or junior lien. If the lender is unwilling to make the loan as a second lien the solution is make the loan to improve the property large enough to include paying off the current first lien on the property, the cost of the tear down, and the cost of the manufactured home. This way your current home loan is paid off and the balance becomes part of the new loan that is used to purchase and install the manufactured home.

Another way to finance a mobile home is to not surrender the title but to finance the mobile home without it becoming a fixture to the property. This would be a lien on the title of the mobile home and the lien on the real property would not extend to the mobile home...just like parking your car in the driveway of your home does not make for an improvement to your real estate and does not extend the lien on your real property to your car. The problem with this approach is that it doesn't solve your problem of having to tear down an improvement to the property that might violate your current real estate loan agreement. Also this type of financing may be more expensive that a real estate loan.

The challenges described above are not unusual to financing manufactured homes. If the dealers that sell manufactured homes were not able to manage these obstacles they would only be able to sell their product to people that could pay cash. So the first place to start is with the dealer from which you intend to purchase the manufactured home. They should be able to refer you to lenders that are willing to finance manufactured housing.

One other thing you may want to consider is to build a new "stick built" home on your property. This would be accomplished by getting a construction loan that allows draws from a line of credit to finance improvements to the property. The first draw would pay off the current lien on the property establishing the construction loan as the first lien. Then as the old home was torn down and the new home built, your contractor would be paid by draws taken from your construction loan. Once the new home is constructed and ready to occupy the construction loan is paid off with permanent financing that is arranged and part of the construction loan process.

Good luck with your endeavor.

Note that the information contained in this post is general in nature and not to be construed as legal advice. For legal advice specific to your situation consult with a competent legal adviser.

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