Study: Fraud and misrepresentation all too common
in sale of manufactured homes

Experience much more akin to buying a used car than a site built home

AUSTIN, TX -- The manufactured home buying experience in Texas often resembles an old-fashioned high-pressure auto deal and may be tainted by allegations of dealer fraud and misrepresentation, according to a Consumers Union study released today.

The study analyzed more than 400 manufactured home consumer complaints filed with the Texas Attorney General or the Office of Consumer Credit Commissioner primarily in 1999 and 2000. The two largest categories of complaints were dealer fraud and misrepresentation (46 percent) and consumers upset about the condition of the home (41 percent).

The report noted that manufactured homes should not be considered a "reasonable alternative for low-income home buyers" without market reforms designed to protect consumers from fraud and predatory loans that strip equity. "Consumers should know going in what lenders, dealers and investors know already: A manufactured home loan can be risky if you owe more than the home is worth."

Dealer problems included falsified down payment information on credit applications and misrepresentations about the terms, the price or the home itself. Consumers also reported loans packed with insurance, financed "points" and other charges that left them "underwater" -- or with negative equity -- for several years following their purchase. The terms or conditions of the sale worsened, including additional costs for items consumers thought they had already covered.

"When it comes to buying a manufactured home, the promise and the reality of the transaction are often quite different," said Kevin Jewell, policy associate with the Southwest Regional Office of Consumers Union. "The system is full of traps for the buyer and needs to be overhauled to create an even playing field for consumers."

Rob Schneider, senior staff attorney for Consumers Union, said the problem should be prime for legislative reform considering that one of every four new housing units in Texas today is manufactured housing.

Consumers report:

· Buyers are locked into a deal before they discover the true price of the home.

· Dealers discourage shopping around in various ways. Some charge $25 or more for a credit check -- or "application fee" -- and warn consumers against getting credit checks at multiple dealerships, saying it will damage their credit score. Although dealers are required by law to refund a deposit within 15 days of a written request, 19 percent of the complaints analyzed by Consumers Union involved dealers unwilling to return the deposit after a consumer decided to walk away from a deal.

· Some families start off owing more than the home is worth. Dealers offer expensive extras like trips, rebates, insurance, or even offer to pay off credit cards. They add thousands of dollars to a consumer loan to pay for these extras.

· The product is not what they ordered or expected. In 29 cases analyzed by Consumers Union, consumers said the dealer switched the house with a different make, model, year or size, or a completely different home.

The problems found in the study are symptomatic of a national trend toward large lending losses in manufactured housing. Industry analysts predict repossessions will continue to rise as tens of thousands of families lose their homes and credit over the next several months. Fraud and predatory loan practices that strip families of equity are responsible for many of these problems, which have led to a recent downturn in the manufactured home market.

"Abusive practices that put consumer 'under water' are at the root of many of the problems our study found," Schneider said.

Added Jewell: "As lenders tighten credit, we are concerned that sales people will be under even more pressure to move inventory which will only exacerbate the current problems. The problems that plague the industry won't be permanently fixed until the industry is compelled to sell in a way that truly builds equity for the consumer."

"While some of these complaints relate to highly individualized incidents, most reveal a pattern of problems shared among many consumers that should be addressed through a stronger and more coherent regulatory system,'' the report said. (**See a listing of recommendations in attached Executive Summary.)

Schneider noted that the Texas Legislature took a step in the right direction in 2001 by passing HB 1869, which converts mobile homes placed on land owned by the consumer to "real estate" subject to protections of standard mortgage lending. But more needs to be done to bring adequate market protections to every mobile home buyer. For example:

· Prohibit lenders from releasing funds to the dealer or manufacturer until installation and warranty repairs are complete, except under certain circumstances.

· Replace the "phone audit" to lender by actual on-site lender visit upon completion of repairs, installation and warranty.

· Inspect every home installation which every mobile home owner currently pays for rather than the roughly 25 percent currently inspected.

Later this year, Consumers Union will issue a report that looks at a sampling of nearly 13,000 complaints filed with the Texas Department of Housing and Community Affairs over a five-year period. The main complaint areas reported to that agency fall under the categories of installation, warranty, advertising and refunds.

(NOTE: Report is available by clicking on web address listed on first page of release.)

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View Files Sorted By Office: Consumers Union OPI, New York - Washington DC Office
West Coast Regional Office - Southwest Regional Office - Consumer Policy Institute

  
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