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NOTES RECEIVABLE FROM MOBILE HOME PARKS

9 Months Ended

Sep. 30, 2024

NOTES RECEIVABLE FROM MOBILE HOME PARKS

4. NOTES RECEIVABLE FROM MOBILE HOME PARKS

The notes receivable from mobile home parks (“MHP Notes”) relate to mobile homes sold to mobile home parks and financed through notes receivable. The MHP Notes have varying maturity dates and require monthly principal and interest payments. The interest rate on the MHP Notes can be fixed or variable, and the interest rates range from 6.9% to 12.0%. The average interest rate per loan was approximately 7.9% as of September 30, 2024 and December 31, 2023, with maturities that range from 1 to 10 years. The collateral underlying the MHP Notes are individual mobile homes which can be repossessed and resold. The MHP Notes are generally personally guaranteed by borrowers with substantial financial resources.

As of September 30, 2024, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 24.1%, 17.3% and 12.0% of the principal balance outstanding, all of which were secured by the mobile homes. As of December 31, 2023, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 17.9%, 24.5% and 14.0% of the principal balance outstanding, all of which were secured by the mobile homes.

MHP Notes are stated at amounts due from customers, net of allowance for loan losses. The Company determines the allowance by considering several factors, including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history. The Company establishes an allowance composed of specific and general reserve amounts. As of September 30, 2024 and December 31, 2023, the MHP Notes balance is presented net of unamortized finance fees of $1,137 and $1,565, respectively. The finance fees are amortized over the life of the MHP Notes.

As of September 30, 2024, there were past due balances of $220 on MHP Notes. As of December 31, 2023, there were past due balances of $98 on the MHP Notes excluding any amounts attributed to the Notes, as defined below. For the three months ended September 30, 2024 and 2023, there were no charge offs recorded for MHP Notes. For the nine months ended September 30, 2024 and 2023, there were no charge offs recorded for MHP Notes. Allowance for loan loss for the MHP Notes was $753 and $735 as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, there was a minimal impaired balance of MHP Notes. Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell.

Settlement Agreement

As the Company previously disclosed, in a Form 10-K for the fiscal year ended December 31, 2023, and Forms 10-Q for the quarterly periods ended March 31, 2024 and June 30, 2024, Legacy and numerous entities owned or operated by one individual (the “Makers”) previously entered into several Promissory Notes (the “Notes”) valued at approximately $55 million. In January 2024, the Makers defaulted on, and Legacy accelerated, a portion of the Notes valued at approximately $37 million. The Notes were secured by mobile homes and mobile-home parks located in Texas, Mississippi, and Louisiana, and personally guaranteed by individuals (the “Personal Guarantors”). In the first,

second and third quarters of 2024, Legacy filed several lawsuits against the Makers and the Personal Guarantors and aggressively pursued the collateral.

On July 27, 2024, Legacy, the Makers, and the Personal Guarantors entered into a Settlement Agreement and Release (the “Agreement”). The parties to the Agreement are Legacy, Legacy’s Executive Chairman, Curtis D. Hodgson (collectively, the “Plaintiffs”), William Rodwell, Cynthia Rodwell, Tony Hartsgrove, Robert T. Hutson II, Yakov Plotnikov, Eric D. Wooten (collectively, the “Individual Defendants”), Cleveland MHC, LLC (“Cleveland”), Country Aire Homes of LA, LLC, Forest Hollow, LLC (“Forest Hollow”), Gulf Stream Homes of LA, LLC, Gulf Stream Homes of MS, LLC, Stellar GS Homes, LLC, SINOP GS Homes, LLC, Gulf Stream Manor Phase 2 Homes, LLC, Iowa Homes, LLC, Southern Pointe Homes, LLC, Southern Pointe Investments, LLC, Southern Pointe Investments II, LLC, Stellar GS Homes LLC, and Country Aire MHP LLC (collectively, the “Entity Defendants”).

As consideration for the mutual releases contained in the Agreement:

●

Forest Hollow conveyed clear title, and the undisputed right to possess, all real and personal property located on or at the Forest Hollow Mobile Home Community, 6650 Broad Oak Street, Beaumont, TX 77713 (the “Forest Hollow Mobile Home Community”) to Legacy;

●

Cleveland conveyed clear title, and the undisputed right to possess, all real and personal property located on or at the Cleveland Mobile Home Community, 110 Old Hwy 49 S. Richland, MS 39218 (the “Cleveland Mobile Home Community”) to Legacy;

●

Cleveland and Forest Hollow assigned all intangible assets, including all leases, contracts, and goodwill applicable or related to the real and personal property located on or at the Forest Hollow Mobile Home Community and the Cleveland Mobile Home Community to Legacy;

●

The Individual and Entity Defendants irrevocably waived any and all claims related to existing deposits; and

●

Legacy refinanced the Entity and Individual Defendants’ remaining debt, pursuant to a new two-year, $48.6 million Promissory Note (the “New Note”).

The New Note is secured by a first priority interest in more than 1,000 mobile homes and two mobile-home parks located in Louisiana, and personal guarantees signed by the Individual Defendants. The New Note is secured by the same Louisiana collateral as the old Notes, while providing additional legal efficiencies. The Individual Defendants have personally guaranteed the New Note to the same extent they personally guaranteed the Entity Defendants’ prior debt.

The Company presents the entire New Note on the accompanying balance sheets under the heading Notes receivable from mobile home parks (“MHP”), and interest income associated with the New Note is presented on the accompanying statement of income under the heading Consumer, MHP and dealer loans interest. The prior debt was presented on Form 10-Q for the quarterly period ended June 30, 2024 on the balance sheets under the headings Current portion of notes receivable from mobile home parks (“MHP”), Notes receivable from mobile home parks, net, Current portion of other notes receivable and Other notes receivable, net. Interest income associated with the prior debt was presented on Form 10-Q for the quarterly period ended June 30, 2024 on the statements of income under the headings Consumer, MHP and dealer loans interest and Non-operating interest income.

The Company recorded the fair value of the real property from Cleveland and Forest Hollow on the accompanying balance sheets under the heading Property, plant and equipment, net. The Company recorded the fair value of the personal property from Cleveland and Forest Hollow on the accompanying balance sheets under the heading Other assets. The Agreement resulted in a gain for the Company of $3.4 million that is shown on the accompanying statements of income under the heading Other income (expense) for the nine months ended September 30, 2024.

The Company evaluated the recoverability of the New Note as of September 30, 2024 and determined a provision for expected loan losses is not necessary based on the analysis of the fair value of underlying collateral.

Notes receivable from mobile home parks, net of allowance for loan losses and deferred financing fees, consisted of the following at September 30, 2024 and December 31, 2023:


	As of September 30,		As of December 31,
	2024		2023
Outstanding principal balance	$	203,374	$	184,280
Loan discount and deferred financing fees		(1,137)		(1,565)
Allowance for loan losses		(753)		(735)
Total	$	201,484	$	181,980

The following table presents a detail of the activity in the allowance for loan losses for the three and nine months ended September 30, 2024 and 2023:


	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
Allowance for loan losses, beginning of period	$	711	$	358	$	735	$	—
Provision for loan losses		42		393		18		751
(Charge offs) recoveries		—		—		—		—
Allowance for loan losses, end of period	$	753	$	751	$	753	$	751

The following table presents impaired and general reserve for allowance for loan losses at September 30, 2024 and December 31, 2023:


	As of September 30,		As of December 31,
	2024		2023
Total MHP loans	$	203,374	$	184,280
Allowance for loan losses		753		735
Impaired loans individually evaluated for impairment		—		31,215
Specific reserve against impaired loans		—		5
Other loans collectively evaluated for allowance		203,374		153,065
General allowance for loan losses		753		730

We evaluate the credit quality of our MHP portfolio based on the aging status of the loan and by payment activity. Loan delinquency reporting is generally based upon borrower payment activity relative to the contractual terms of the loan. The following table disaggregates the outstanding principal balance of MHP receivable by credit quality indicator based on delinquency status and fiscal year of origination and is presented as of September 30, 2024:


	Year of Origination
	2024		2023		2022		2021		2020		Prior		Total		% of Portfolio
< 30 days past due	$	78,028	$	38,870	$	33,940	$	21,683	$	24,607	$	2,435	$	199,563	%	98.1
30-90 days past due		—		3,811		—		—		—		—		3,811		1.9
> 90 days past due		—		—		—		—		—		—		—		—
Total	$	78,028	$	42,681	$	33,940	$	21,683	$	24,607	$	2,435	$	203,374	%	100.0