Many mobile home owners never take this step of having their home re-classified, and when these homeowners file for bankruptcy the federal bankruptcy court must address the dual nature of the property.
In bankruptcy this classification is most important when determining what exemption law applies. In Delaware, each individual is permitted to protect up to $15,000 in the equity in a vehicle, but $125,000 of the equity in their residence.
If you own the mobile home and are living in it, regardless of whether you own or lease the land, you are allowed to claim the “homestead exemption" on the mobile home in Delaware under 10 Del. C §4914(c)(1) and protect up to $125,000 of the value of the mobile home, rather than the lesser $15,000 exemption if it were classified as a vehicle.
A second question then arises as to how you value the mobile home if it is on rented land. A 20-year old single-wide mobile home sitting in an affluent mobile home park in Rehoboth Beach is likely to have a much greater value than that same mobile home if it is situated in a mobile home park in the rural farmlands of western Sussex County. The value of the Rehoboth Beach mobile home could potentially exceed the $125,000 exemption limit, thereby allowing a Bankruptcy trustee to sell the mobile home.
In Delaware this second question was recently settled in the case of In re Welch. In Welch, the bankruptcy court decided that you should only consider the value of the mobile home itself, using the NADA or some similar guide, rather than taking into account the location of the mobile home. This means that virtually every mobile home on rented land would be fully protected under the $125,000 exemption.
The rationale for the Welch decision is that since the owner of the mobile home does not own the land on which the mobile home sits, you should not attribute them with value of that land.
The Welch decision benefits residents of eastern Sussex County Delaware who have lived in a mobile home on rented land for many years, and have seen a dramatic increase in the population and property values of the surrounding land. The decision acknowledges that these mobile home owners have not benefited from the dramatic increase in property values since they do not own the land under which their mobile home sits.