The California Court of Appeals looked at a full-sized installed $200,000 modular home, and refused to call it personal property (as the installer had requested). Did they make the right call? The case here – Vieira Enters. v. City of E. Palo Alto - is super complex and important.
Case Facts: Contract Terms Important For Installer of Manufactured Home
The facts here are important, and specifically, the contract terms in the contract between the installer and the property owner are important.
The California Court of Appeals points out in the opinion’s introduction that “Under the contracts, Vieira agreed to sell, deliver, and ‘install’ the manufactured homes on their ‘foundation.’” The “install” word would not be too problematic for the installer (Vieira, an authorized dealer of Fleetwood Manufactured Homes), except the contract went on to very specifically characterize the home as a movable until payment was received in full:
Paragraphs 4 and 6 in the contracts stated, respectively: “Should the security represented by the manufactured home, in fact, be impaired, seller may sue buyer for the entire unpaid balance owing from buyer to seller on the contract.” “The manufactured house herein shall remain personal property and will not be placed on a foundation system, become affixed to or become any part of any real property without the express written consent of seller until payment of the entire balance as set forth in this agreement. Failure to comply with this paragraph shall constitute a breach of this agreement giving rise to all the remedies made available to the seller as herein above set forth.”
Vieira completed the contract in full, but the property owners didn’t pay the balance. The property owners were foreclosed upon. This is where the facts get really weird.
To take possession of the property and sell it in foreclosure, the mortgage holder asked that the city issue a “Notice of Installation.” This “notice of installation” – a simple piece of paper – would legally alter the manufactured home from a “fixture” to an “affixed” part of the property. The city issued the “notice of installation,” and the property was sold.
[pullquote style="right" quote="dark"]Vieira claims that the issuance of the notices transformed its personal property, the manufactured homes, into real property and this action deprived it of its personal property without providing just compensation.[/pullquote] Vieira had filed a mechanics lien against the property (remember, the property), and filed an action to foreclose the lien. The installer also filed lawsuits against a number of other parties including the city who issued the “notice of installation,” claiming that when the notice was issued it constituted a “taking” and violated Vieira’s substantive due process rights because it converted the property from a fixture to an affixed component part. Here is how the court explained this claim: “Vieira claims that the issuance of the notices transformed its personal property, the manufactured homes, into real property and this action deprived it of its personal property without providing just compensation.”
Whew – you get all that?
Was The Manufactured Home A Fixture Or An Affixed Part Of The Realty Right Before The Notice Of Installation Was Issued?
You would think it would be easy to classify something as either a “fixture” affixed to the land or “personal property,” right? It’s the difference, for example, between a microwave and a wall, right? It’s either attached to the property or not. Just look at it. The parties in this case, however, were arguing about whether the issuance of a piece of paper – the “notice of installation” – could actually change the character of the manufactured home.
Under the common law of fixtures, property is either real or personal. (Civ. Code, § 657.) Real property includes both land and things that are affixed to the land. (Civ. Code, § 658.) Manufactured homes are personal property until “affixed” to land. (Civ. Code, §§ 657, 658, 663.) … ‘There are three main factors’” to consider when determining whether personal property has become a fixture under the common law: “‘(1) physical annexation; (2) adaptation to use with real property; (3) intention to annex to realty.
The California Court of Appeals ruled that the piece of paper doesn’t matter. The three-prong test mattered and this manufactured home was not personal property sitting on-top of the foundation. It was a fixture of the property and part of the realty.
The Impact on Mechanics Lien Claims
The facts and law in this case was so confusing, I’ve barely mentioned the mechanics lien. That’s because the case is barely a mechanics lien case…but it is, in a backhanded sort of way. You see, if the manufactured home wasn’t a fixture affixed to the ground, the mechanics lien claim really wouldn’t stand. You can’t file a mechanics lien against a microwave. You can only file it against realty.
That is one area of confusion for me when reading this opinion, because Vieira was talking out of both sides of its mouth. On the one hand, it was claiming the property was real property entitling it to a mechanics lien, but on the other hand required the property be considered personal property to make its taking argument.
Nevertheless, potential mechanics lien claimants who perform work on a manufactured home should look at this opinion favorably, as the court is seemingly acknowledging that manufactured homes are “affixed” to and become part of the real property when installed.
Look For This To Be Appealed As The Manufactured Homes Industry Is Shocked
We can all expect to hear more about this case, because it is sending shockwaves through the manufactured home industry. To understand their position and why this case matters so much, take a look at the Amicus Curiae (friend of the court) brief filed by the California Manufactured Housing Institute.
The group stepped into the case to argue in favor of a finding that the manufactured home was a movable, with title retained by the installer until payment was received in full. Their brief argues that ignoring this contractual language and common practice, the manufactured home industry would face significant hurdles staying in California, including limiting the availability of insurance and lending for these homes.
Accordingly, an appeal to the Supremes is likely.