Sub-divide Real Estate With a Mortgage

What happens to my current mortgage if I split my lot and sell half of it?

1 Answer

In order to sub-divide your land you must first request, and receive, a partial release from the present mortgage holder. The process is somewhat time consuming but it is possible to achieve. Your mortgage lender has either a mortgage or a deed of trust recorded against the property and it contains the following specific language:


"...Borrower does hereby mortgage, grant and convey to the LENDER, the following described property...YOUR LEGAL DESCRIPTION...

TOGETHER with all improvements now or hereafter erected on the property..."

This means that ALL of the land and its improvements are mortgaged by the lender. Therefore, you cannot sub-divide any part of the lender's security and sell it to someone else without their express permission.

Here's how it works. Let's say you have two acres and your home sits nicely on one acre. You would like to sub-divide the second acre and sell it. However, the lender mortgaged two acres plus a house. Therefore, you are decreasing his value in his collateral for the mortgage.

First you contact the lender and obtain a copy of their process to receive a partial release. Here's what it will contain.

You will be required to contact your land use (usually zoning) county government office and obtain their requirements (and approval) to sub-divide. Let's assume they researched your property and see no issues.

You'll then be required to obtain a survey by a licensed land surveyor to stake the property and obtain a new legal description for the excess acre you wish to sell. This is easily the most expensive and time-consuming part of the process. It may cost you up to $8,000.00, depending on your area. This information typically must be presented to the county zoning department for their approval when the surveyor has finished all his work. In some areas, the surveyor must even appear before the board to explain his work.

Then the lender will want an appraisal for the home with one acre and also an appraisal on the single acre. So, long as your county approves the survey, legal description, and the appraisal of the home and lot is sufficient for your mortgage then your lender will issue a partial deed of release.

It's more time consuming and expensive than most people think at first, but the rewards may be greater than the aggravation. Just keep in mind you are not allowed to "partial" off part of the lender's security for the loan and follow both their and your county's land use or zoning board and you should be fine.