You’ve heard of the popular 1960’s television legal drama “Ironsides”? Well, in this case it’s “Ironsides” meets “metal sides” – the legal side to mobile home park ownership. It’s the first of a five-part series in which we discuss what every park owner needs to know about the law. We’re not lawyers, and we’re not dispensing legal advice. We’re just reviewing the things we’ve learned from 20+ years of park ownership and how that relates to issues that pop up from time to time. If you worry about staying out of harm’s way (and who doesn’t) then you’ll appreciate this discussion.
Episode 34: The Legal Side To Mobile Home Park Ownership Transcript
Iron sides versus metal sides. This is Frank Rolfe for the Mobile Home Park Mastery podcast. We're starting a five part series on the legal side of park ownership. Yes, a lot of people when they think of the world of law and mobile home parks, they immediately think of shows such as Cops or Judge Judy or things where you see our residents involved, but there's also a legal side to the owners themselves and the issues they have to deal with on a daily basis.
So, we're going to go over the top five different things as a park owner, that you have to be aware of with a lot of insider tricks and thoughts and knowledge garnered over 20 years of being in this business. But, I will tell you on the front end, I am not a lawyer. I have never been a lawyer. So, what I'll be telling you is not legal advice. I have no desire to give you legal advice nor to have the liability of giving you legal advice. I'm instead, going to be giving you just observations that I have from paying a lot of lawyers to get their advice. So, this is not really an advice giving session. This is more of me just relating to you the things I've learned over 20 years of mobile home park ownership session.
So, the first we're going to talk about in this five part series is, grandfathering. No, we're not talking about the baby boomers. We're not talking about inner-generational households. The concept of grandfathering means, that if you've got something that was zoned a certain way. If they've changed the zoning laws or any law in the city after that date, it has no bearing on you. Let's start off with the three basic classifications in the world of zoning. You've got, legal conforming zoning. You've got illegal and you've got legal nonconforming. Now, legal conforming means, you can build that mobile home park again today. So, you've got the right zoning's. You've got the right spacings. You've got everything you need to build that park again today from scratch. That's called legal conforming.
There's another variety called illegal. What does that mean? It means the park was built without any permits at all. The guy just went in one day, he built a park, maybe in the dead of night. Maybe over a weekend. Of course, you can't build one like that, we all know that. But, you'd be shocked how many cities look the other way when mom's and pop's built their mobile home parks. We've seen some giant illegal parks. Things that are upped in the hundreds of lots, yet the city never shut them down. The problem is, as a buyer if you buy that mobile home park, they can immediately shut you down. So, you just can't buy illegal mobile home parks.
But there's a third variety, and that's called legal nonconforming. It means it was legal when it was built, but today it is not conformed through the current guidelines. Therefore, legal nonconforming. Now, legal nonconforming is known instead, typically in America, by it's slang term of 'grandfathering'. So, let's go over what grandfathering is, what it isn't, and the things you as a park owner should know. Basically, a mobile home park is like a parking lot. If you look back on those early videos on You Tube, what do you see? The typical mobile home park in the early days, was literally just a paved or cleared field. And, people would bring their trailers in and park them there and of course, that's where the word 'trailer park' came from. Now, the modern trailer park looks different, today we'd look more like subdivisions with grassy yards and driveways and carports and things like that.
But nevertheless, we are at the end of the day, back to those early roots, a parking lot. So, we have everything in common with a typical park and fly parking lot at the airport. Or that parking lot downtown next to the office building. So when you're a parking lot, what happens is you are allowed to have so many spaces to park cars in. And thereafter, even if they change the law and they require parking spaces to be three times bigger, or they require you that you can't have a parking lot in that area anymore. Your existing parking lot is good to go, till the end of time. As long as you don't abandon yet, and as long as it's not destroyed in some kind of weather event.
And of course, you can't really destroy a parking lot. Think about that for a moment. How would you destroy a parking lot? Can't blow it away in a hurricane. Can't get rid of it in a flood, water's ultimately recede. There really is no way you can get rid of a parking lot. As far as abandonment goes, if you at least have a sign up saying, "Parking spaces available" and a working phone line, then it's deemed that you never abandoned the use. You might not have no cars in it, you could just be a bad business person with your rates too high. But the simple fact that you have customers or don't have customers does not mean that you abandoned the use.
So really, mobile home parks they really just never die. You really just can't get rid of them in the normal procedure. As a result, just about every mobile home park that you're ever going to look at buying, if it's grandfathered. Means that it still has the right to operate today based on that nice little permit it had back in the era in which it was built. It doesn't matter what the city has done since then. They may have changed the law. They may have made mobile home parks illegal. They might have your front set back from the street 300 feet, it doesn't matter. All that matters is the laws and the rules in affect when the park was built.
Now, why do so many cities get mobile home parks wrong? Why do they not understand grandfathering in mobile home parks? Well, it's very simple. If you're a city inspector, you are classically trained to understand grandfathering only as it relates to real property. So, what does that mean? It means that if you've got a house, which is real property, in the city and that house is blown away in tornado and it no longer is legal conforming but that house was legal nonconforming. Perhaps it was too big. Perhaps it was to near the street. The bottom line is, you can't put it back because, that house is what was grandfathered. Our industry's different because, our use, our parking lot is what's grandfathered. But those homes in the parking lot, those are chattel property, personal property, not real property. So, they can come and go, it doesn't matter to us at all. Our only real property use is the parking lot.
So, a lot of inspectors get very confused. They see a vacant lot in your mobile home park and they say, "You can't put a mobile home on that." But they're completely wrong. Of course you can put a mobile home on that, why couldn't you? It's fully grandfathered. Because what they're used to seeing is, whenever that real property goes away, you can't put the real property back but this is not real property. This is personal property. It is basically defined in many areas the same as an automobile. An automobile is not real property. The fact you have your car parked in the driveway of the home that blows away in the tornado, has no bearing on things. That car has no real estate rights whatsoever. So the bottom line is that mobile home parks are basically, parking lots. They're fully grandfathered from the date that they were built. And you really just can't get rid of them.
So, that's kind of the world of grandfathering. Now why do we have so many problems in the industry with grandfathering? Well, first off is the fact that a lot of the inspectors don't understand how it works. But, you think that could be easily remedied. But the bigger problem is, most cities hate mobile home parks. They hate them with a passion. Now, when I got in the business I thought they hated them because they didn't like the residents. They thought, "Oh, I don't want these people in my city. Let's get them out of the city." But that's actually not the reason. Later from serving in different city capacities here in my small town and understanding more about the ins and outs of running a city, I have come to find out that really what's happening is, that cities view mobile home parks in a negative way because, they loose so much money for the city.
Let's look at that for a minute. Let's just take an example, if you've got a mobile home park and let's say the lot is valued on the tax rolls at $30,000 in real property. And the home on top is valued at $10,000 as personal property. That gives you $40,000 of taxable value, which in a state like Missouri would get you $4,000 a year ... I'm sorry, $400 a year in property tax. Basically, $40,000 at 1%. Now, let's say in that mobile home, you've got two kids, which both go to school. Each of those kids is costing the school district about $7,000 a year in tuition. So, the city right off the bat, has $14,000 of cost and only $400 coming in. So, it's losing $13,600 right off the bat. On top of that, a lot of mobile home park residents do not carry insurance, health insurance. Or, they don't carry satisfactory health insurance. So every time they go to the hospital because somebody broke their arm or some other health emergency. The city once again takes it on the chin. There's another thousand, nother couple thousand dollars down there. You take that amount of loss and multiple that times 50 or 70 or 100 lots, you can immediately see why cities don't like mobile home parks.
Think about all the competing uses for land and the profit loss statement that the city has on those. Let's take for example, an office building. The office building has lots and lots of property tax coming in but no cost going out, unless someone one day, has to call the fire department once every decade. So, that's a very profitable use for land. But there are even more profitable uses for land. Let's say you have a shopping center. Not only do you get your property tax, you also get sales tax as a result of the shopping center. So, if you look at all the different uses for land, and you rate them on profitability for the city. You'll see that mobile home parks come in dead last. That is what causes the hostility to the city and that's why they would love to eradicate the parks. But they can't because at the end of the day, they still have to contend with this law called grandfathering.
Thank heavens for grandfathering. If it wasn't for grandfathering, I can guarantee you that every city in America would shut every mobile park down in 10 minutes. But because of grandfathering, they simply cannot. Now, it's been tested. Cities will sometimes say. "Well gosh darn it, I hate that trailer park so bad I don't care what the law says, I'm just going to get rid of the thing." So, despite the fact they can't do it, they will go ahead and file some kind of action against the park to try to shut it down. It's been tried, it never works. Just a couple of years ago in the state of Mississippi, a city tried to do that to a park. Park owner took it to the Supreme court of Mississippi and they won. In fact, it's gone to the Supreme court of a state no less than four other times and every time, the park owner has won and the city has lost.
So, the park owner right now is batting a perfect score. Why is that? It's just because it's the rule of law. It's not because the park owner was so eloquent nor because they went out and hired Effley Bailey or a high priced law firm. The reason is that, the city is always in the wrong on this case. The laws of grandfathering is a basically, a national law and it's something that the cities, despite their desire, simply cannot overcome the actual rule of law. In fact, if you had a problem today in grandfathering, probably the best thing you can do will be to take that Mississippi Supreme court ruling and just give them a copy of that. Because if you did have to go to court I imagine, you'll probably bring that up as case law. And it spells out in complete detail exactly all the arguments and all of the legal value of each argument.
So, it safe to say basically, that parks are not going away and grandfathered is not going to do a darn thing to make them go away. So, we're hoping over time, the cities will calm down on the whole issue. On top of that, there's additional skin in the game recently, when a park owner brought in the concept of discrimination, into a similar action by a city against the park. And, they appealed it to HUD saying that the city not only was guilty of trying to oust their park from the city but they were doing so because of discrimination because they did not ... Basically, did not like poor people. Well, the park owner once again, won. And very terrifying for the city is the fact, that under HUD's decree under this one case, which is now case law. The city is now being investigated by HUD, I believe for the next four years. So everything they do, they have to pass scrutiny under HUD for absence of discrimination.
You can imagine as a city employee, how terrifying, how redundant it is to have to take everything you do and have it double, triple checked by HUD for discrimination. So I think that's a big argument going on that will even reduce grandfathering down further. In the state of Texas, you have the Texas Mobile Home Association that was able to go in and actually get the laws of the state of Texas changed. Texas now has a state mandate that cities cannot stop you from using any of your vacant lots. You know longer even have to worry about arguments of grandfathering, simply because they can't do a darn thing about it. They've taken it from a city optional matter to basically, state law.
So at any rate, grandfathering is a very, very powerful force. It's a law. It's a fact. It is case law, you can't really go around it. You can't over it. It's simply there for all to see. So although it's one of the biggest issues as a park owner you will time to time, have to confront. Fortunately, you have almost a perfect record of success. Now, if you have no vacant lots it's very possible you never even have to come up with this issue. This issue typically only comes when you've got a park with vacant lots that you want to use. And a rogue inspector says no that you can't. So, you maybe very lucky and never have to deal with this issue, ever in your mobile home park career. But more than likely, if you have even one vacant lot, it may pop up from time to time. But the good news is, in over 20 years of dealing with this and owning mobile home parks, we have never ever lost a case. We again, have a perfect score ourselves in the world of grandfatheri ng. To us that's very reassuring.
Hope you all learned something from this discussion of grandfathering, the legal side of park ownership. We'll be back with another one here shortly on part of our five part series.