Wisconsin REALTOR®
December 2000 
Volume 17, Number 3

	Legal Matters
Best of the Legal Hotline Mobile Homes Must Be Off Wheels to Tax as Real Estate LBP Case Law Policy Limits Lender Payments to Mortgage Brokers

Best of the Legal Hotline

By Debbi Conrad  & Tracy Rucka

The following questions were recently asked of the Legal Hotline:

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Mobile Homes Must Be Off Wheels to Tax as Real Estate

The Wisconsin Court of Appeals has found that when a mobile home, located on land owned by its owner, is connected to utilities and is not completely supported by its wheels - it also rests in part on some other type of support - it is considered "off its wheels" and is therefore set upon a foundation. Within the meaning of the tax statutes, the mobile home is then taxed as real estate.

At issue in this case was the taxation of several mobile homes located on owned lots in a subdivision. The wheels are still on each of the mobile homes and, with three exceptions, the weight of the units is at least partially on these wheels. The remaining weight is borne by stabilizers such as cement or cinder blocks or screw jacks. The owners all reside in their mobile homes, but only a few do so year-round - most are there two-to-seven months per year. Each lot also includes an additional structure such as an attached deck or screened room or porch on footings, or a freestanding shed. All of the basic units are connected to utilities. The trial court decided that a mobile home on an owner's lot could not be taxed as real property unless the majority of its weight was on some support other than the wheels. 

A "mobile home" is defined in Wis. Stat. § 66.058(1)(d) as a structure "that ... is, or was as originally constructed, designed to be transported by any motor vehicle upon a public highway and designed, equipped and used primarily for sleeping, eating and living quarters, or is intended to be so used; and includes any additions, attachments, annexes, foundations and appurtenances." Mobile homes in Wisconsin may be taxed as real property, or as personal property, or they may be exempt from property taxes altogether, depending on such things as their location, physical support and size. 

1. A mobile home is an improvement to real property if it is connected to utilities and is set upon a foundation upon land that is owned by the mobile home owner. A mobile home is "set upon a foundation" if it is off its wheels and is set upon some other support.
2. A mobile home is personal property if the mobile home owner does not own the land upon which it is located or if the mobile home is not set upon a foundation or connected to utilities.
3. Mobile homes "that are no larger than 400 square feet and that are used primarily as temporary living quarters for recreational, camping, travel or seasonal purposes" are exempted from general property taxes per Wis. Stat. § 70.111(19)(b).

The question before the court of appeals came down to whether the mobile homes in question were "set upon a foundation." The court found that Wis. Stat. § 70.043(1) is ambiguous because the phrase, "off its wheels and ... set upon some other support," is capable of being understood by reasonably well-informed persons in different ways. This language, the court remarked, could mean that a mobile home must have its wheels physically removed, that part or all of its weight must be borne by something other than the wheels, or the entire weight of the mobile home must rest on something other than the wheels. 

In its analysis, the court observed that a mobile home on a rented lot in a mobile home park or campground is personal property, no matter what the weight is resting on. A mobile home that is not connected to utilities is not real property. If a mobile home is on the owner's land and connected to utilities for temporary use, an owner may preserve a unit's mobile character and personal property classification by simply leaving it on its wheels and using no other supports. But once the owner rests the mobile home in whole or in part upon blocks or other stabilizers, the court concluded that the mobile home should then be treated, for tax purposes, the same as "conventional housing." Thus, the court found that when a mobile home, located on land owned by its owner, is connected to utilities and is not completely supported by its wheels - it also rests in part on some other type of support - it is "off its wheels" and is therefore it is set upon a foundation within the meaning of the statute. The mobile home is then taxed as real estate. The attachment to a porch or other addition does not change this result.

To be exempt from personal property taxation, a mobile home must be no larger than 400 square feet and used primarily as temporary living quarters for recreational, camping, travel or seasonal purposes. The definition of mobile home in Wis. Stat. § 66.058(1)(d) specifically includes any additions, attachments, annexes, and foundations associated with the mobile home. The court found it clear that any rooms, porches, decks and other additions that are attached to the basic unit are included within the definition of the mobile home. Accordingly, the court found that the area of any attached structures must be included when determining the square footage of a mobile home. 

In this case, there was a dissenting opinion by Judge Charles P. Dykman. He found that if there is space between a mobile home's tires and the ground, it is "off its wheels." Thus the dissenting judge concluded that to find that a mobile home is a real estate improvement for tax purposes, it must be off all of its wheels and its weight must be on other supports.

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  LBP Case Law

By Rick Staff

In 1999 the United States District Court for the Eastern District of Wisconsin decided two LBP cases dealing with a broker's liability for negligently hiring a painting contractor who had created LBP hazards. The Chapman decisions involved a FHA financed transaction. The FHA appraisal revealed pealing and chipping paint. As instructed by the HUD-approved appraiser, the listing broker hired a painter to scrape and repaint much of the property's exterior. After the painter was finished the appraiser determined that the property met HUD standards. After the buyer moved into the property the buyer's four year old child was discovered to be suffering from elevated lead blood levels. The suit accused the broker of being negligent in hiring the painter, failing to supervise and inspect the painter's work and in failing to disclose the LBP to the buyer. The court ruled that the as-is clause in the buyer's offer did not protect the broker from the negligence claims because "exculpatory clauses" like an as-is clause, must specifically and expressly address negligence claims in order to bar them. 

What conclusions can brokers, parties and their attorneys draw from the Chapman cases? First of all, never assume federal agencies will operate in a manner that will protect brokers and parties from potential violations of state and federal LBP law violations. It is almost commonplace for buyers getting FHA loans to be required to scrape and paint surfaces that contain LBP. Anecdotal information suggests that the typical buyer is not informed of safe work practices and rarely are certified professionals mandated. This goes on despite the fact that the work required is often of a nature that federal or state law requires certified contractors to perform. 

Secondly, before a broker hires any contractor, the broker should recognize that it is not a part of a broker's duties to be hiring contractors. The broker should, therefore, obtain specific authorization to hire as well as a specific release from the parties (for any damages caused by the contractor). If a broker volunteers to hire a contractor, prudent practice would be to hire only those contractors that hold all applicable LBP credentials for the type of work being performed. Often a better practice is to give the parties a list of local contractors, have the parties determine which contractor best meets the needs of the parties and have the parties hire the contractor. 

Finally, it would be prudent to provide buyers who are either doing LBP work themselves or hiring contractors a copy of Legal Update 00.04 and the EPA pamphlet, "Lead in Your Home: A Parent's Reference Guide," which can be found at: http://www.epa.gov/lead/leadrev.pdf. Finally, an excellent training tool is the WRA videotape of CE course 4d, Lead-Based Paint Issues. This tape can be ordered for CE purposes or just as a reference for your office. Look under Education

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  Policy Limits Lender Payments to Mortgage Brokers

RESPA Statement of Policy 1999-1: Regarding Lender Payments to Mortgage Brokers

Under RESPA, a mortgage broker is a person (not an employee or exclusive agent of a lender) who brings a borrower and lender together to obtain a federally related mortgage loan, and who renders settlement services. In transactions where lenders make payments to mortgage brokers, HUD does not consider such payments (i.e., yield spread premiums or any other class of named payments), to be illegal per se. Instead, these payments are illegal if they violate the prohibitions of Section 8 of RESPA, such as where the payment is an illegal kickback or referral fee, or exceeds the reasonable value of the goods and services delivered. Mortgage brokers currently initiate an estimated half of all home mortgages made each year in the United States. 

Description of Mortgage Brokers 

Mortgage brokers generally fit into two broad categories: those that hold themselves out as representing the borrower in shopping for a loan, and those that simply offer loans as do other retailers of loans. The first type may have an agency relationship with the borrower. The second type, while not representing the borrower, may make loans available to consumers from any number of funding sources with which the mortgage broker has a business relationship. The broker provides loan origination services, but the lender provides the loan funds and the loan is closed in the lender's name. In table funding, mortgage brokers may process and close loans in their own names. However, at or about the time of settlement, they transfer these loans to the lender, and the lender simultaneously advances the monies to fund the loan. The coverage of Statement 1999-1 is restricted to payments to mortgage brokers in table-funded and intermediary broker transactions. 

Mortgage brokers vary in their methods of collecting compensation. A mortgage broker may receive compensation directly from the borrower, indirectly in fees paid by the wholesaler or lender providing the mortgage loan funds, or through a combination of both. Where a broker receives direct compensation from a borrower, the broker's fee is likely charged to the borrower at or before closing, as a percentage of the loan amount (e.g., 1% of the loan amount) and through direct fees (such as an application fee, document preparation fee, processing fee, etc.). 

Indirect compensation from lenders or wholesalers are referred to as "back funded payments," "servicing release premiums," or "yield spread premiums." Yield spread premiums are based on the interest rate and points of the loan entered into as compared to the par rate offered by the lender to the mortgage broker for that particular loan (e.g., a loan of 8% and no points where the par rate is 7.50% will command a greater premium for the broker than a loan with a par rate of 7.75% and no points). The broker can increase its revenues by arranging a loan with the consumer at a particular rate and then, based on market changes or other factors that decrease the par rate, increase his or her fees. 

Lender payments to mortgage brokers may reduce the up-front costs to consumers. This allows consumers to obtain loans without paying direct fees themselves. However, the interest rate of the loan is increased to compensate the broker or the fee is added to principal. All costs are ultimately paid by the consumer, whether through direct fees or through the interest rate. 

RESPA Restrictions

Payment for goods or facilities actually furnished or services actually performed is not prohibited under RESPA. However, to the extent the payment is in excess of the reasonable value of the goods provided or services performed, the excess may be considered an illegal kickback or referral fee. 

In determining whether a payment from a lender to a mortgage broker is legal under RESPA, two critical questions must be answered:

1. Were goods or facilities actually furnished and/or were services were actually performed for the compensation paid? 
2. Was the compensation reasonably related to the value of the goods or facilities that were actually furnished and/or the services that were actually performed? 

Mortgage Broker Goods & Services 

In making the determination of whether compensable services are performed, HUD has identified the following services normally performed in the origination of a loan: 

(a) Taking information from the borrower and filling out the application; 

(b) Analyzing the prospective borrower's income and debt and pre-qualifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford; 

(c) Educating the prospective borrower in the home buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product; 

(d) Collecting financial information (tax returns, bank statements) and other related documents that are part of the application process; 

(e) Initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit); 

(f) Initiating/ordering requests for mortgage and other loan verifications; 

(g) Initiating/ordering appraisals; 

(h) Initiating/ordering inspections or engineering reports; 

(i) Providing disclosures (truth in lending, good faith estimate, others) to the borrower; 

(j) Assisting the borrower in understanding and clearing credit problems; 

(k) Maintaining regular contact with the borrower, realtors, lender, between application and closing to appraise them of the status of the application and gather any additional information as needed; 

(l) Ordering legal documents; 

(m) Determining whether the property was located in a flood zone or ordering such service; and 

(n) Participating in the loan closing. 

The operation of a computer loan origination system (CLO) or an automated underwriting system (AUS) is also considered to be an eligible service. 

HUD is concerned that a fee for steering a customer to a particular lender (referral fee) could be disguised as compensation for "counseling-type" activities - items (b), (c), (d), (j), and (k) on the list above. HUD generally is satisfied that no steering occurred if it finds that: 

• Counseling gave the borrower the opportunity to consider products from at least three different lenders; 
• The entity performing the counseling would receive the same compensation regardless of which lender's products were ultimately selected; and 
• Any payment made for the "counseling-type" services is reasonably related to the services performed and not based on the amount of loan business referred to a particular lender.

In addition to services, mortgage brokers may furnish goods or facilities to the lender. For example, appraisals, credit reports, and other documents required for a complete loan file may be regarded as goods, and a reasonable portion of the broker's retail or "store-front" operation may generally be regarded as a facility for which a lender may compensate a broker.

Once it is determined that compensable mortgage broker services were performed and/or goods or facilities were furnished, the determinative test under RESPA is whether the payment received by the mortgage broker is reasonably related to the value of the goods or facilities that were actually furnished and the services that were actually performed. Payments from lenders to mortgage brokers must be reasonably related to the value of the goods or facilities actually furnished or services actually performed. If the payment or a portion thereof bears no reasonable relationship to the market value of the goods, facilities or services provided, the excess over the market rate may be used as evidence of a compensated referral or an unearned fee in violation of RESPA.

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