Land Sales on Mortgaged Property

[Leta]

Hypothetical scenario:

I own 20 acres of land with a house and barn on it. It is mortgaged. I want to sell ten acres of raw land to my brother. The zoning board approves. What do I have to do to make this right with the mortgage company? Do I need to get the house and barn appraised as if it were on ten acres to make sure that it's worth enough that way to justify the mortgage? Is this even allowed? Has anyone had this experience?

Thanks!

 

[~gd]

I was on the opposite side of this question, I was the one buying the raw land. The homeowner/morgaged person was told that technically she could not sell off part of the holding without the morgage holder's permission since the mortgage covered the entire property and without their release a deed could not be issued. In our case more than 1/2 the value of the entire property had been repaid and the morgage holder was willing to release the part I bought for a minor paperwork fee ($25) In other words the bank felt secure holding just the house and the remaining land to be sure they were protected.
A second line of attack was mentioned by my sister's lawyer. She could remorgage the house and 1/2 of the land and use the proceeds to pay off the original mortgage. This is more complex than the usual refinance deal that were popular when people were refinancing to get a lower mortgage rate and taking equity from the property for other uses. In this case she would be stuck for all the normal closing costs even though she was really rebuying her house from herself, the new mortgage holder would need all the usual assurances that the house really was saleable for the money they would be loaning.
Our deal was helped by the fact that the mortgage remained with the original bank, not so much with small holdings, but the typical house on a lot were often bundled together and sold all over the country or the bundle of morgages used to back a bond or mortgage backed security. It gets complex so I would suggest that the first thing you do is contact the morthage holder. ~gd

 

[BirdBrain]

You may also need to resurvey the property and subdivide it. The current mortgage would cover both pieces but when an appraisal is done of both pieces, it would be very clear what they are lending you money for. Big assumption here, but if you use the proceeds to pay off part of the mortgage, what you will be refinancing for will only the part you retain. Assuming that you are not upside down on your loan, then it sounds like it would be a good deal for you and an acceptable risk for the bank. Your best bet is to make an appointment with a loan originator with lots of years of experience and explain what you are considering. It doesn't have to be the bank you currently have your loan with. Check around for interest rates.