Ensuring Compliance: One Of The Pillars Of A Successful Colorado Mobile Home Park Sale
It is estimated that nearly 20 million people live in mobile home parks across the country. In Colorado alone, more than 100,000 people live in the state’s 900 mobile home parks.
Unlike traditional houses, mobile-home owners only own the four walls of their homes — not the land underneath it. Due to this unique configuration, these residents are often more susceptible to eviction or displacement.
To give tenants additional protections under the law, the state of Colorado enacted the Colorado Mobile Home Park Act, which includes Colorado Revised Statute Section 38-12-217. This law requires mobile home park owners to give homeowners notice of their intent to sell and allows the homeowners to submit a competing offer.
“Owners must provide notice of their intent to sell, which includes a summary of the potential sale deal points,” said Seth Weiland, an attorney at Otten Johnson, a Denver-based real estate law firm. “The sale can’t happen, however, until 120 days after the notice is given — giving the homeowners a period to come together and potentially make the purchase themselves. In some cases, this 120-day period can even be extended.”
For homeowners to purchase the park from ownership, they must have 51% or more of the homeowners elect to pursue the acquisition. If they decide to send the owner an offer that is equal to or better than any private offer or the listing terms, the owner is generally required to sell to the homeowners. If there is no valid offer from the homeowners after the 120 days, the owner can then sell to a third party.
Making it more complicated, the homeowners have a right to assign their interest to purchase to governmental entities and nonprofits.
For Park Owners, Compliance Is Vital
While aiming to increase protections for residents, the opportunity-to-purchase statute creates several administrative hurdles that buyers and sellers of mobile home parks should be aware of.
These hurdles include the detailed delivery instructions for the notices of intent to sell, translation to Spanish requirements, limitations on when and how a park owner can communicate with residents after a notice of intent to sell is delivered, and requirements for issuing new notices of intent to sell, if a proposed deal changes terms.
“Knowing that a closing is typically at least 120 days after purchase agreement execution, buyers need to understand the effect on their ability to obtain financing and effect on transaction and due diligence costs spent,” Weiland said. “What happens if the homeowners come in and buy it? Do the buyers lose all that money they've put into the deal’s due diligence and capital stack preparation? Should the seller reimburse? Should the buyer get a second bite at the deal if the homeowners cannot close? How does this extended closing process work with a 1031 exchange strategy?”
He added that questions also arise if the seller messes up the notices and the buyer has to wait longer to buy the property than expected. Who is responsible for damages incurred by the buyer due to this delay? These are all issues that a well-drafted purchase agreement needs to contemplate.
Weiland said that when investors are buying and selling mobile home parks, monitoring the proposed amendments to this act and its regulations thoroughly is vital. Revisions can happen “fairly regularly,” so ensuring compliance is key to a successful sale. If the transaction is deemed noncompliant with the act, owners could be fined significantly, or the state has the authority to try to stop the sale altogether.
“What we’ve seen in cases where Colorado Revised Statute Section 38-12-217 is violated is that the 120-day notice period restarts, further delaying the sale,” Weiland said. “This can have unintended consequences for both the buyer and seller. With that said, the state also has the right to impose burdensome fines and, in some cases, try to prevent a sale.”
Interpretations of the act can also vary depending on who is involved on behalf of the Colorado Department of Local Affairs, Weiland said, adding that as staff changes, it seems the department’s interpretation changes too.
Growing Interest In Sector
When the opportunity for residents to purchase was first effective in 2020, market professionals were afraid the legislation would slow down or deter buyers, especially out-of-state, institutional buyers, Weiland said.
Investor activity, however, is still strong in the market.
“From our perspective, we're still seeing a lot of institutional buyers come in and are willing to make deals work,” he said. “We see a lot of institutional buyers because they have the sophistication to be able to wait out this period and engage team members, brokers and real estate attorneys that have the skill set to navigate these laws.”
The U.S. mobile home park market is growing. While there are still plenty of mom-and-pop operations, Weiland said, institutional investors and private equity firms are increasingly eyeing these properties. As of July, 23 PE firms owned more than 1,800 parks across the U.S., accounting for 377,000 lots.
Similarly, from 2018 to 2023, the average price of a new mobile home increased 58% — 20% more than that of traditional single-family homes.
“The market is growing from all angles, so our job at Otten Johnson is to make sure that these deals are memorialized properly from a legal perspective on behalf of the sellers and buyers,” he said.
He added that the act is pretty robust compared to other states, so it is a good idea to work with a local law firm that knows the regulations and routinely practices in the area. Many times, out-of-state law firms representing a buyer or seller will engage Otten Johnson to act as local counsel with regard to the nuanced laws surrounding selling a mobile home park in Colorado.
Avoiding Costly Mistakes
Beyond the strict opportunity-to-purchase regulations and timelines, there are other compliance requirements that buyers and sellers should be aware of.
“You can only increase rents once every 12 months for mobile home park residential leases, so buyers from other states might think they can come in and bump the rents up right away, but that’s not necessarily an option here,” Weiland said. “The Colorado Mobile Home Park Act is robust in its requirements around the operation side of owning a mobile home park. Any owner is wise to engage a local law firm and property management group with experience in Colorado in an effort to comply with these laws.”
The state of Colorado polices these notices of intent to sell when they are disseminated, Weiland added. Residents are permitted to provide complaints to the state alleging violations by a park owner of the Colorado Mobile Home Park Act. The state prioritizes many of these complaints for review and investigation when a mobile home park is under contract for sale.
One missed step can result in serious consequences, whether that involves fines of up to 30% of the property's value or restarting the 120-day period.
These deals may be on the buyer’s plate for much longer than it is used to because of the opportunity-to-purchase period, Weiland said. Thinking ahead and bracing for how the market may shift should be part of buyers’ due diligence strategy and purchase agreement negotiations.
Why Expertise Matters
Otten Johnson represents institutional buyers and sellers as well as small, private groups across the country in their buying, selling and financing of mobile home parks.
“Our attorneys have in-depth local knowledge that other firms may not possess with regard to Colorado mobile home park law,” Weiland said. “The laws in this sector change every few years, making it so important to have someone on your side that’s able to interpret these changes as they arise and adjust your strategy accordingly.”
This article was produced in collaboration between Otten Johnson and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
