Real Vs. Personal Property.

Mr. Hutchens is a managing partner with Hutchens Senter & Britton, a law firm based in North Carolina.

With many parts of the country facing economic difficulties, foreclosures have been running at near all-time highs. With that comes many challenges, including having bankruptcy and real estate foreclosure proceedings "tripped up" by lack of clear title to the home. Without marketable title, the lender cannot accomplish its real asset recovery objective.

Of all residence types, title issues are most prevalent with mobile (manufactured) homes. Too often we find that many of these homes, from the standpoint of the lender, legally speaking, are still classified as personal property, as opposed to real property, even when the home is being taxed as real property.

This is because the originating mortgagee and its closing agent failed to take the necessary steps to classify the mobile home as real property. This problem is particularly prevalent in states like North Carolina where mobile homes are a popular choice for new and existing homebuyers.

Lenders and their servicers are becoming increasingly aware that their portfolios may be heavily populated with such "problem" loans. These title challenges are time consuming and expensive to resolve, especially as they often only become apparent once foreclosure actions have commenced. One way of navigating around this obstacle is for the mortgage lending team of lender, servicer and their legal counsel to enter into a loss mitigation plan with the borrower.

Sorting Things Out

The roots of these problems began a decade ago when the large volume of originations overwhelmed many lenders who were doing all they could just to keep up with the tidal wave of closings. In some cases, closing agents relied solely on tax records. Here in North Carolina, for example, the Department of Revenue changed the tax laws. Generally speaking, as long as a mobile home had its wheels, tongue and axles removed, had a permanent foundation, was in a residential neighborhood, and was placed on land owned by the homeowner, it could be taxed as real property.