Living Room Meeting Notes: Financing

Last night a new couple to the park hosted a small group of us in a discussion with Michael Fitzgibbons of Murphy Bank.  It was a valuable meeting as we had a chance to ask some of those niggling questions about what type of financing would be available if we decide to purchase our lots.

It was also a great way to meet some of our neighbors … something that I had hoped might happen when I started this blog.  Since living rooms are small, these meetings are by invitation only but I will publish notes from them so that everyone can share the information gained.  

Also, I am available to talk to anyone about any aspect of this conversion, individually or in small groups.  I've learned a lot about this process but I don't know it all … however I enjoy the process of tracking down information and will try to find answers to anything I don't know.  If you want to be on the invitation list or would like to get together, email me at jwycoff@me.com … or call 870-656-4141. (Also, if you would like to host a meeting, please contact me.)

What's the downside? Because so many negative things have been said about conversion, I always ask about the downside of this process.  Michael's response mirrored what I've heard from others:

• If you can afford to purchase your lot, you will eliminate the ever increasing space rent and have an opportunity to share in future appreciation … a pretty sure bet for California coastal real estate … especially in the aftermath of the real estate crash of 2008.  Plus the interest is tax-deductible.
• In a high space-rent park such as Mesa Dunes, some people may find that their mortgage payments are less than space rent and the mortgage payments on their homes (if they have a mortgage.)
• Selling a "package" of home and lot in the future should be easier because more financing options will be available … as long as the price is in line with area values. The high space rent here in the park is a significant deterrent to many potential buyers.
• If you decide not to buy your lot, you stay on your current lease.

Appraiser of Last Resort:  One of the most comforting aspects of Michael's discussion was about how lenders actually protect us from unreasonable prices by reflecting the market and being, in effect, the appraiser of last resort.   Before Murphy Bank will lend to anyone, they will do an appraisal of our home (which includes our unit, the lot it's sitting on and the park it's in).  This appraisal values our home in comparison to all other housing opportunities in the area.  (See "Blind Appraisal" below.)

     Extreme example:  If the lot price were $400,000 and we wanted to get $150,000 for our unit, the total price would be $550,000.  In some areas such as the park in Avila, that would work just fine but it wouldn't work here.  Neither Murphy Bank nor any other bank would be likely to loan $550,000 on a home in this park in today's environment.

Because we know how this works … and we can ask the advice of people like Michael … we would never buy the lot in the first place at that price.  We'd just keep renting.

     More likely example:  Lot price: $200,000, Unit value: $75,000 - $125,000 for a total value of $275,000 - $325,000.  Sunrise Terrace has many units for sale in that range and it is the closest to us in geography and amenities.  From the beginning, Richard Laxton (Michael's boss) has said that he would expect the lot prices to wind up in the $150,000 - $200,000 range.  

In that range, we are relatively sure that the market would support the total value of our home and lot and can make our decision based on our personal situations and inclinations.

Pismodise Aside:  I checked out Pismo Dunes … the senior park across from the beach that mainly has smallish park models with only a whisper of space between them … called "Pismodise" in three recent magazines.  Out of the 48 units for sale, 20 were priced over $100,000 and 15 of those were over $125,000.   Space rents were less … $475 to $675 (at a 6% annual increase).  The beach is nice but I didn't think it looked like Paradise at any price and it made me doubly happy to be at Mesa Dunes.

Notes on Financing:  Michael reaffirmed the basics of their financing process:  20-year mortgages with 20% down, with mortgage and impounds (tax, insurance and HOA fees) limited to 28% of income and good credit history.  Mortgage insurance is not required.

Downpayment: the 20% downpayment requirement can be met through cash or equity in your home.  If the lot price is $200,000 and you own your home valued at $50,000 or more, you have enough equity to meet the downpayment required. (See notes in the "Murphy Bank is a specialty bank" note below.)

     Note for early purchasers:  The Mesa Dunes owner has offered a 10% discount for residents who open escrow within the first 90 days after conversion.  This would make the price of a $200,000 lot, $180,000.  The $20,000 does NOT count as downpayment … however, you would then only need $45,000 equity in your home.

     Note if you have a mortgage:  You can wrap your current mortgage in with the new loan for your lot … however, you still have to meet the 20% downpayment requirement and the 28% income requirement.  Michael will be there to help you work out the specifics of your particular situation when the time comes to pencil out the details.

Interest Rate and Points:  If the lots were for sale today (and they won't be for another year and a half to two years), the interest rate quoted by Michael would be 5.75% … or a little over what the "standard" rate is. They offer the same rate to "stick-built" homes.

Michael also said to plan on 3 points as the cost of the mortgage.  So, if the lot price turns out to be $200,000, it would take about $6,000 to initiate the loan.

We will have to revisit the interest rates as we get closer to the actual time to make our decisions.

For comparison sake, I plugged general information into Quicken.com and got this back … however, Quicken is not an option in our situation.

Low Income Loans:  Murphy Bank "loves" MPROP loans where the state program loans the first 50% of the loan at 3% simple interest and Murphy picks up the rest of the loan amount at their standard rates.

Murphy Bank is a "specialty bank" and their Mission Statement states: To continue to be recognized as one of California's best specialty banks with a focus on small businesses and individuals, emphasizing customized services to busy people through long term relationships.

The reason this is important to us is because they can do things other banks can't (or won't) …

• they can make loans on mobile homes older than 1976. (This was a surprise to me and means more people can use their units as part of their loan-to-value calculations.)

• they can make loans even if a permanent foundation is not in place. (Although, in the long run it is probably a good idea to get this done since future financing will most likely require it … and, if the "big one" comes, it might make a difference.)  More about permanent foundations here.

• they are not limited to "standard" valuation tools such as the "Blue Book" (NADA … National Auto Dealers Association "Blue Book"). Every property goes through an individual appraisal. (See "Blind Appraisals" below)

• they can work with individuals who may have one-time credit challenges such as foreclosures if all else looks acceptable.

• they are familiar with Mesa Dunes and are willing to loan as soon as lots are available for sale while all other lenders I've talked with are going to wait until enough sales have been made to establish a baseline of park valuations ("comparables").

 "Blind" Appraisals: This sounds like a joke coming on but actually refers to the process of getting individual properties appraised by contacting a third party that picks the appraiser.  The bank never actually makes contact with the individual appraiser and thus cannot influence the valuation.

A Reminder

This, too, shall pass.

We should all try to stay calm.  We are all neighbors in a community and most of us will still be here long after this is done.

(This is a note to self as much as it is to anyone else.)

Questions ... and Living Room Meetings

Wouldn't it be nice if all questions
were so simple? From the Cambria
Scarecrow Festival.

At the Monday meeting, we asked people to vote for the questions that are most concerning to them.  The questions are listed below in the order of votes.

Each question will be comprehensively addressed … and verified by  people knowledgeable and competent about conversions.  The researched answers will be released in order of importance (per the voting total) one at a time.  

After each question is thoroughly researched, several of us (residents who are learning and becoming more informed about conversion) will be available for "living room" meetings.  You invite us in … we sit and chat about the question in a calm and rational manner.  You will have the opportunity to ask as many questions as necessary until you understand how it affects your particular situation.   

You might want to invite a few neighbors … or not.  We will make every effort to be available on your schedule.

Questions:

1. What will happen to my rent if I don’t buy my lot? (32 votes)
2. What will the price of the lots be? (30 votes)
3. What method of appraisal will be used to determine lot prices? (26 votes)
4. Will conversion lower the value of my house? (23 votes)
5. What will happen if a major system (water, sewer, etc.) breaks after conversion? (18 votes)
6. If I don’t buy my lot, what happens when I sell my house?  Will I lose the value in my house? (17 votes)
7. Can someone else buy my lot but not my house if I don’t buy it? (14 votes)
8. Does SB 510 affect this conversion? (13 votes)
9. Will the same CC&Rs apply after conversion? (10 votes)
10. How will the new HOA Board be chosen? (10 votes)
11. What does getting a permanent foundation involve? (10 votes)
12. How will lot prices be affected by changes in the real estate market? (8 votes)

Free-flowing Information

Summer in Avila

(Original post has been deleted because it was written when I was over-heated and after calming down, I don't think it served anything.)

I would like to remind everyone that we are still in the information gathering stage about conversion and we should support the free flow of information.

We're all smart enough and mature enough to make our own decisions about information and the sources of information.

The Importance of Trust

Strange things happening in Mesa Dunes.

In one of our earlier meetings, a man made a comment that was probably one of the most profound things said during the time that we've been talking about conversion.  He said, "It's all about trust."

It is clear to me is that we are in a situation where we don't know whom to trust.  And, it's not just here in the park. Our whole society is suffering from broken trust.  We no longer trust our doctors, lawyers, journalists, priests, policemen, advertisers, corporations, scientists, or our political leaders. It has become acceptable not to believe anything that anyone says.  

Years ago, as I was working with corporations to help them design and implement change initiatives, it became clear that the biggest barrier to success was something we could not see or touch.  We couldn't write memos to it, talk to it or even hire or fire it.  

But we could see it when it was there and feel it when it wasn't.  It was trust ... or the lack of trust ... and it was like an invisible web, as strong as steel, that held things together when it was there and let things fall apart when it wasn't.

We started talking and thinking a lot about trust.  Of course, we found that just saying "trust me" didn't work, as a matter of fact, it seemed to have the opposite effect from the one we wanted.  

So, we started trying to figure out what caused trust and what broke it.  We came up with seven basic components of trust and, when we focused on getting those components right, everything started changing for the better.  

Here are the elements we identified and some questions to ask before we grant our trust to someone else … and questions to ask of ourselves to see if we deserve the trust of others.

Safety -- Do I feel safe taking a risk and listening to new ideas? Do we help others feel safe and respected?

Concern for well-being -- Does the person or entity asking for my trust have concern for my well-being? Are we thinking about the well-being of others as well as ourselves?

Fairness -- Is everyone treated fairly and equitably and getting the same deal as everyone else? Are we treating everyone we meet fairly?

Competence -- Does the person know the facts and have the expertise to understand every aspect of the situation? Are we learning everything we can to develop our own competence?  

Openness -- Does everyone feel free sharing their ideas and concerns?  Are all opinions valued and listened to? Do we invite everyone into the conversation and share our own thoughts and feelings openly?

Reliability -- Can we count on promises and commitments being kept? Do we keep the promises and commitment we make?

Honesty and Integrity -- Do we value honest and integrity enough to demand it of ourselves and everyone we interact with?

These things are not easy to practice, but trust is critical to our lives, our community and our society at large.  

When we can't trust anyone, we feel lost, alone, unsafe, fearful.  It breaks my heart that we as a society … and we, right here in our own community, have reached this point of broken trust.  

Because we have to trust each other.  

We can't make it in the world without trust.  When we get out of bed in the morning, we trust that the lights and water will be there for us.  When we go to the store, we trust that people will drive on the right side of the road and stop at stop lights.  We trust that there will be food in the store when we get there and that they will take our money in exchange for the groceries we purchase.  

Trust is the glue that holds us together … and here in the park we've come slightly unglued.  My hope is that we can begin to talk together and build the trust we need to make good decisions about the future of the park.  Conversion is a long and complex process, we need to learn to trust each other enough to gather sound information that will serve everyone involved.

Years ago, I co-authored an article titled, "Trust Comes before Risk-Taking."  You can read it here.

Fantasy Thinking Could Take Away Our Options

More pumpkins show up in Mesa Dunes

The HOA Board in their current newsletter has a front page headline that says "Great News!" because SB 510 was signed into law.  The law is one of those that sounds great on the surface but on closer reflection, might be significantly flawed.

SB 510 gives approving authorities the right to reject a conversion of a mobile-home park when it is not supported by a majority of the homeowners.  What could be wrong with that?  

For one thing, it could significantly reduce our choices as homeowners.  It could wind up taking away the option of full homeownership (coach and land) that could be beneficial to many of us.  Because the language uses the "majority of residents" as its key point, it ignores the fact that elections seldom … if ever … have *all* residents voting.  

When the requirement is for a "majority of all," every person who does NOT vote, effectively casts a NO vote.

SB 510 will make it much harder for people who want the benefits of full home ownership to exercise that option … while doing nothing to improve the conditions for people who want to continue renting … at least in a park such as Mesa Dunes where almost all the residents are already paying high space rents.

What's the alternative to conversion?

What I'm not sure people think about is what happens when a conversion is denied.  

Does the owner just say, "Oh, well, that was a nice try that didn't work?"   Hardly.

Usually, he appeals and the conversion winds up in court … a process that can drag on for years, keeping the park in limbo and discouraging sales and ultimately depressing the value of our homes.

Other options include selling the park to a different park owner … one who might or might not keep the park at the same level of maintenance as what we have today. Or to a real estate investment trust … an entity designed to maximize profits for the trust which consists of stockholders who never see or even know about the park.  They don't care what the maintenance level is … just their return on investment.

Rumors … Rumors … Rumors

The rumor mill has it that the current HOA Board … or at least a subset of it … has visions of stopping THIS conversion and starting their own membership conversion like Sunrise Terrace where share ownership is $200,000.  The rumor mill also has it that the board wanted to buy Mesa Dunes several years ago but were afraid of the infrastructure issues so they didn't buy it.  

The current owner bought it, took the risks the Board wouldn't, and now wants to sell it.

So, let me see if I've got this right … the HOA Board, who have vigorously maintained that they are not against conversion are actually against THIS conversion and want to start their own. 

So, they are gathering letters and signatures so that they can oppose the conversion when it goes to the county … and presumably they will show up in force to oppose THIS conversion.  

If they succeed in getting THIS conversion denied, the owner will be forced to pour even more money and energy into the pockets of lawyers.  And, after years of litigation, let's presume that the owner loses (something that rarely happens).

Then, the HOA Board, is going to go to the owner and say politely, "We'd like to do a conversion OUR way." (This is sort of like going to a Mexican restaurant and saying I want prime rib, please.)

And, after opposing him for years and costing him a bundle of legal fees, they think he's going to say, "Oh, goody … I wish we'd thought about that ten years ago … let's make a deal … and, oh by the way, I'd be happy to give you a really good price."

I don't think so.  To me, this is just fantasy thinking.

I wrote a letter to Governor Brown … obviously one that did not sway his thinking, but it does spell out my thoughts about SB 510.  I use my own specifics just to help illustrate the issue and have included it below even though SB 510 is already signed.  

If we want the choices that this bill could take away from us, we're going to have to make ourselves smarter and be willing to make our needs and concerns known to the county.  We need to understand ALL of the facts about our choices.

Simple Road Map to Help You Make Your Choice

I am putting together a road map of simple questions each of us can ask ourselves to help us think through our individual situations in order to make a better, more informed choice.  We will present this road map at the meeting October 14th, 5:30 pm in the LOWER clubhouse.  

To help us think about conversion in a rational, deliberate manner, we will also have two outside experts … Thomas DeRosa and Rick Milanesa from Hybrid Homes.  They have a lot of experience with mobile homes, conversions and values in the surrounding area.  

Please put this meeting on your calendar ... we have the power to make this conversion beneficial for all of us ... but only if we act together in a way that protects our options.

Town Hall Forum #1

Pumpkins are showing up in Mesa Dunes!

All Residents of Mesa Dunes Invited!

Town Hall Forum #1

FOCUS: CONVERSION AND THE VALUE OF MY HOME

     "Together we know more than any one of us."

     

Monday, October 14th 5:30 pm 
in the LOWER Clubhouse 

This is a new kind of meeting about the conversion process ...

1,  There will be CHOCOLATE!

2.  For residents only … no owners or lawyers …  just us sharing our information, thoughts and concerns.

3.  No petitions, no hostility, no personal attacks.

4.  Focus will be on the specific facts affecting each of us individually.

5.  Time to talk, ask questions and get to know each other better.

Guest Speakers: To help deepen our understanding of the conversion process and how it affects each of us, we have invited two informed outsiders who have generously agreed to share their time and experience.  Thomas DeRosa and Rick Milanesa are partners in Hybrid Homes.  They have installed a lot of mobile homes in Mesa Dunes as well as other area parks.  They know the mobile home environment in the local area and the conversion process.

Announcement: Some additional protections for residents who decide to 

continue renting and incentives for residents who decide to purchase

their lots have been approved by the owner and will be explained.

Specific Examples:  Three brave souls will be invited to present the basics of their individual situations so that we can work through specifics in relationship to the facts of the conversion that have been presented by the owner.  Our guest speakers will help guide us through this process and we will use a worksheet that will be available to each of you. 

Town Hall Forum Schedule: (Please mark your calendar.)

October 19th, Saturday, 3 pm.  Focus:  What Happens If I Don't Buy My Lot? - Guest Speaker: Stephen Iverson, Realtor, Keller Williams, Long Beach, actively involved with after conversion sales in Windward Village. Stephen has a unique outsider's perspective on "life after conversion."

October 30th, Wednesday, 7 pm. Focus:  Will I Be Able to Get Financing? - Guest Speaker: Michael Fitzgibbons, Murphy Bank, who will help us understand the financing aspect of buying our lots.

NOTE:  To keep this meeting productive and BRIEF, the following topics will NOT be discussed:

-- the survey, since it's already done

-- the "residual" method of appraisal, since it won't be used.

PLEASE JOIN US … WE NEED YOU!  

We're all in this together …

 let’s inform ourselves

and work to protect everyone in our community.

Organized and funded by the Mesa Dunes Residents for a Collaborative Conversion, 

for more information, please contact Joyce Wycoff, jwycoff@me.com, 870-656-4141.