ACREL News & Notes August 2018 If It Floats, Can It Be Real Property?

Anna C. Shimko, Burke, Williams & Sorenson, LLP¸ San Francisco, CA

The term “real property” – bought and sold through realtors or brokers and subject to burdensome real property taxes – conjures visions of land, that stuff comprised of dirt and rocks. So it stands to reason that I, who live with my family on a floating home in Sausalito, California, and pay monthly berth fees to the privately-owned harbor that owns the land beneath our bobbing abode, do not own real estate. Think again (kind of). There is a vibrant market for such floating homes, roughly half a million to 1.5 million bucks in my neighborhood and up to 3 million dollars in Seattle (romanticized, of course, by the film “Sleepless in Seattle”). With government always seeking more revenue, in some states, floating homes are classified as real property for tax purposes and are largely treated like real estate.

A floating home differs from a houseboat and is not technically a boat at all. Generally, the design is a box of some sort on top of a floating hull made of concrete ideally, or perhaps barrels or Styrofoam. The US Supreme Court tackled the boat/not a boat distinction in Lozman v. The City of Riviera Beach, Fla. 568 U.S. 115 (2013), finding that the Florida city wrongfully classified a home as a “vessel” under federal admiralty law when it “arrested” and destroyed Mr. Lozman’s floating home for nonpayment of marina rent. Because Mr. Lozman’s two-story plywood home with French doors sitting atop a floating bilge had no means of self-propulsion (like a motor) and could only be moved via towing, it was not a houseboat. Id. at 122. Similarly, the structure could secure power and water services only by hooking up to land lines. The Court said it could “find nothing about the home that could lead a reasonable observer to consider it designed to a practical degree for ‘transportation on water’” and thus it was not a vessel under 1 U.S.C. Section 3. Id. Consistent with Lozman, California defines a “floating home” as a floating structure designed or modified for use as a stationary waterborne residence without its own power, requiring hook-up to on-shore utilities and sewer service. Cal. Rev. & Tax. Code §229.

Floating homes in Florida are now treated as tangible personal property, and taxed as such. Fla. Stat. §192.001(17). The same is true in Oregon, which has a robust floating home market. Or. Rev. Stat. Ann. Section 307.190. However, both California and Washington treat their floating homes as real property for tax purposes, taxing them in the same way as homes on land. See, Revised Code of Washington §82.45.032 and California Rev. & Tax. Code §229.

It is curious to classify our floating home as real estate given that we merely own the box with doors and windows, but pay a monthly fee to the harbor owner as rent and for limited utilities, like water, sewer and garbage service. The harbor owns the land under the floating homes and where the docks, parking areas and open space are provided. At some other floating home marinas, the slips are sold separately from the home; those who own the slip pay homeowners’ fees to maintain the “common area” of the docks and provide utility connections. ACREL News & Notes August 2018 Where there are established floating home communities, the homes are marketed, bought and sold just like other homes, often with the help of specialized realtors, but securing mortgages on them is challenging. Understandably, most lenders shy from the floating home arena since not everyone views floating homes as “proper” real estate, some harbors are subject to renewal of marina land use entitlement permits every twenty years or so, and the terms of leases to floating home owners of their berthing space may be for only ten year renewable increments. Floating home communities tend to be cohesive and established, so the likelihood that they will be regulated out of existence seems slim, but still the risk is far greater than with a traditional home on a subdivided plot of terra firma. For this reason, lenders who do provide loans for floating homes generally require larger down payments and higher interest rates.

The Supreme Court in Lozman, supra, 568 U.S. at 127, said California and Washington “treat structures that meet their ‘floating home’ definitions like ordinary land-based homes rather than like vessels." While this is true in certain respects (e.g., taxation and real estate disclosures), there are anomalies. For example, transfer of a floating home in California is accomplished via bill of sale rather than a recorded grant deed. The transfer is documented with a state agency, the same one that conducts title searches for floating homes. The owner gets evidence of title and registration; but if a loan is made, title is held by the lender while the floating home buyer gets the registration.

No matter the oddities, while “sittin’ on the dock of the bay” (a song supposedly written on our very own dock) sharing a drink with neighbors, the legal character of our property interest seems of minimal import.