This is part three of a three part blog that explains what you need to know about your modular home financing. In my last post I explained the significance of the final modular home payment and option of paying either COD or by an assignment of funds agreement. In this post I add more details.
Modular Home Financing: Whose Name Should Be on the Check
Some lenders insist on making the final modular home payment in the name of the customer even though it’s owed to the dealer or manufacturer. Others allow the name of the modular dealer or manufacturer to accompany the customer’s name. When the modular home payment is in the customer’s name, either alone or along with the dealer’s or manufacturer’s name, the customer must endorse the check before the dealer or manufacturer can cash or deposit it. Modular home dealers and manufacturers almost never accept a check in the customer’s name alone for an assignment-of-funds payment, and only some dealers and manufacturers will accept a joint check. The reason is that when the customer’s name is on the check, the customer unilaterally gets to decide if and when the dealer and manufacturer are paid, which defeats the purpose of the assignment. Given that the modules will already be on the foundation when the check is handed over, the dealer and manufacturer do not want to allow the customer to have this much control. Accordingly, most modular dealers and manufacturers insist that the assignment-of-funds letter state that the check will be issued in their names only.
If your dealer insists on receiving the modular home payment only in their or their manufacturer’s name, bring this to the attention of lenders before applying for financing. The best way to ensure that a lender and dealer can work with each other’s policies is to ask the dealer to give you a sample of an acceptable assignment-of-funds letter before you select a lender. You can then ask each lender to approve the letter. If a lender asks for some modifications to the dealer’s letter or proposes their own letter, and the dealer is not agreeable, you will probably need to find a different lender or dealer.
Modular Home Financing: What if Your Lender Won’t Make a COD Payment
If your modular home dealer and their manufacturer require a COD payment and you are unable to find a local lender to assist you, your dealer is likely to know which lenders will comply with this requirement. To avoid a misunderstanding, you and your dealer should ask the lender to write a letter committing to pay for the balance owed on delivery.
Modular Home Financing: Are You Vulnerable after You Pay for the Modules
You might wonder whether paying the modular dealer and manufacturer in full on delivery or immediately after the set compromises your leverage should you subsequently find something wrong with your home. You certainly do lose leverage. This is exactly why you should shop very carefully for a dealer and not just buy from whoever is the least expensive. Just as you should never buy a car from a dealer who has a reputation of not providing good warranty service, you should never buy a modular home from a dealer who you are not confident will honor their warranty obligations. Regardless of when you pay a dealer, your warranty is only as good as the dealer’s integrity and competence.
Modular Home Financing: Why the Disbursement Schedule Is Important
In addition to verifying that a lender will meet your dealer’s modular home payment terms, you also need to ensure that it will agree to an acceptable disbursement schedule. This schedule states how much money will be disbursed at each phase of the construction process. Most of the details are worked out by the customer and their GC, since the general contractor will require several separate disbursements, but the customer and dealer are responsible for ensuring that the schedule disburses the full amount at the correct time for the modules.
A lender may agree to an assignment-of-funds procedure but then offer a disbursement schedule that fails to allocate sufficient funds to pay the balance due on the modules. Since the dealer is unlikely to agree to a partial modular home payment, you need to inform prospective lenders about the dealer’s payment requirement before selecting one. If a lender’s schedule does not provide you with sufficient funds at the right time, and you call this to the loan officer’s attention before you sign the loan agreement, a lender will usually adjust the schedule to accommodate your needs. After you sign the paperwork, however, a lender will usually resist changing the schedule, which will likely force you to find a new lender.
Modular Home Financing: Why Using a Lender Takes More Time
Keep in mind that it will take longer to receive your home if you use a construction loan because the modular manufacturer will wait for the lender to write its assignment-of-funds letter before putting your home into the production schedule. And the lender will probably wait to write the letter until you have closed on the loan, which likely cannot happen until you have a building permit. As you approach the closing on your loan, do everything you can to prepare your lender to write the letter immediately after the closing.
A couple of weeks before the delivery and set of your modular home, ask the lender to schedule its representative to inspect and approve the modules and disburse the balance due. The inspection and modular home payment will be required by the lender whether the payment terms are COD or assignment of funds.
Modular Home Financing: Why You Might Need to Pay COD When Using Private Funds
When you use a private source of funds to pay for some part of the balance due on a modular home, the dealer and their modular manufacturer are likely to require you to pay for the modules when they are delivered. A COD modular home payment will need to be made with a bank or certified check made payable to the dealer or manufacturer, as instructed by the dealer. Needless to say, you will not be obligated to pay for the modules if the dealer and manufacturer built you the wrong home, a situation that is very unlikely if you select a reputable dealer.
Modular Home Financing: Why an Additional Deposit May Be Needed If You Are Using Private Funds
If you are paying COD, your dealer may require an additional deposit for each module before they will schedule your home to be built. These additional funds will serve as insurance for the dealer should you fail to pay when the modules are delivered. The dealer will use the additional deposit to defray the expenses they will incur if they have to return the modules to his manufacturer or sell them to another customer at a discount.
For more information about modular home financing, see Financing a Modular Home in my book The Modular Home.