Ask a Lawyer: Refinancing with Freddie Mac

By: Steven M. Williams

I am contemplating refinancing my property with Freddie Mac, which requires that I incorporate its “Tenant Protections” into my lease. Before I complete the refinancing, I have a few questions.

Am I required to convert my leases, which are all currently month-to-month, to year-to-year leases, and if yes, what is the impact on me?

Yes, the Freddie Mac loans generally require lease terms of one year, with one-year renewals. Under the Manufactured Community Rights Act (MHCRA), your tenants’ leases renew indefinitely unless they are terminated due to a lease default, cessation of the community or change in use of the land. Thus, in a sense, the length of the term is not terribly important.

Two areas where this will require a change in your operations, though, are notices and disclosures. First, any changes you want to make to the lease terms (such as rent amount, new fees, etc.) or the Rules and Regulations will require at least 60 days’ notice to the tenants, as opposed to 30 days. Second, you must provide the “long form” disclosure to all tenants. This form contains much more information than the “short form” fee disclosure. Many landlords have month-to-month lease terms specifically to avoid the “long form” disclosure.

Do I have to allow my tenants to assign their leases or sublease their lots?

With regard to your tenants that own their own homes, the answer is yes. You are required to allow a buyer of the home to assume the seller’s lease or to sublease the lot from the seller for the balance of the lease term. For your tenants who rent the homes and lots from you, the answer is no.

If I have to allow assignments and subleases, to whom may I look for the payment of rent?

In a sublease situation, the original tenant remains your tenant under the original lease, which is not terminated. Rather, the homeowner/seller enters into a lease with the sublessee/buyer. As the community owner (i.e., the original landlord), you do not enter into a contract with the sublessee. Thus, unless the sublease provides differently, you can only to seek lease remedies from your original tenant for any lease defaults. If you include language in a sublease approval document, which all parties should sign, that allows you to go after both the original tenant and the sublessee in the case of a default, you would have this right. However, absent language in the sublease approval document, you would only be able to seek remedies against your original tenant.

In an assignment of the lease, your original tenant would be released from all obligations under the lease. The buyer would be the new tenant, and you would have all remedies against the new tenant instead. If you want to maintain your remedies against the original tenant, you would need an agreement with the original tenant in which he agrees to remain liable under the original lease. The Tenant Protections prohibit unreasonable restraints on assignments. Whether asking the original tenant to “stay on the hook” would be considered to be unreasonable is uncertain.

What are the pros and cons of having some form of a contract directly with the sublessee?

I do not see any cons. It is always better to have more than one person to whom you can look when there is a lease default. This is the main pro: you will have rights and remedies against both the original tenant and the sublessee. Absent a writing with the sublessee, however, your sole remedies would be against the original tenant.

Can I just enter into a new lease with the new tenant or sublessee?

If the new tenant or sublessee is willing to enter into a new lease, nothing prohibits this. Under the Tenant Protections, you just can’t require it.

If I refinance with Freddie Mac, will I need to revise my lease?

Unless your lease is already consistent with the requirements set forth in the Tenant Protections, it is likely that you will have to amend your lease and have all of your homeowner residents sign it.

Note that there are other requirements in the Freddie Mac Tenant Protections. Before committing to a refinance, you should understand and agree with all of the requirements, and you will need to ensure that your operations are consistent with them. You should consult an attorney before committing so that you are fully aware of the consequences.