There are five basic types of ownerships for rental mobile home parks converted to resident-owned communities. Which type a homeowner’s association (HOA) uses is dependent on that group’s goals. The following guide shall help narrow the options for HOAs in California considering conversion:
A standard subdivision is one with “no common areas” per California law. Good points include that it is simplest to keep, with each individual homeowner responsible for their own property. Additionally, the included homeowners would own the ground and the structure.
Condominium overlay (air space condominium)
Traditionally, in an airspace condominium, the homeowners own everything inside the home, from the paint on the walls to the rugs. The larger organization owns the structure and land itself. This means general maintenance and material updates are the responsibility of the ownership group.
In a cooperative, technically, the residents do not own the property but shares in the overall community. The technical difference here is somewhat moot in that one can claim coop shares as real property on their taxes. In this structure, all members of the group share responsibility for maintenance.
Limited equity housing cooperative (LEHC)
We recently wrote on the history of LEHCs. These are distinct from cooperatives in that they require IRS approval to form and approval from the California Department of Business Oversight to allow owners to sell shares.
In a corporate ownership, the HOA would essentially create a new corporate entity to handle the management of the community. The new corporate structure would be a new legal entity that may come with significant tax liabilities. However, if someone ever brought a lawsuit against the community, the homeowners would have a great deal of liability protection.
Which one is right?
Choosing the right structure for your HOA community post-conversion is a highly individual process. You might find any one of these choices ideal, but the trick will be gaining full community agreement.