You buy a house, a property, or a piece of land on the mortgage (loan) and come across a buyer interested in it. Would you be able to sell it to a buyer who is interested in a piece of that land? Would the process of selling a piece of land on which you still owe a mortgage be easy?
Would there be any requirements, clauses, or a need for detailed paperwork to sell off that piece of land? Many different questions arise when you come across a buyer who wants to purchase a piece of your land. Let’s discuss the unique hurdles to selling part of your land if you still have a mortgage on that property.
Mortgage and Reselling Land
For many individuals buying a house or a property is a one-time investment. Before making such a big purchase people tend to make sure that they are not only able to afford it, but also know the ins and outs of getting a mortgage. Few buyers actually take the time to read the entirety of the documentation that they sign on closing day. The various clauses included in standard mortgage contracts are essential considerations when it comes to selling property that has been used to secure a mortgage.
While buying a house, a mortgage plays a very crucial role. Most individuals opt for a mortgage instead of paying the entire cost of a property upfront. Acquiring the mortgage, a form of loan against the piece of land, property, or a house, can benefit the lender and borrower.
The lender ends up benefiting from interests paid on long-term mortgages. The borrower benefits in being able to purchase a home that they could not otherwise afford without the mortgage system. The system of mortgage is active in many parts of the world, especially the United States.
Mortgages in the US
The mortgage system in the United States works differently as it does in the rest of the world. The cycle for lending and borrowing is never-ending with the presence of financial institutions as the money collected in repayments of the mortgage loans is reallocated to other new borrowers.
The cycle relies on repayments from those who have acquired this loan, through which the financial institutions end up giving out more loans in a mortgage. To sell a portion of land, it is essential that you have the deed to the land stating you own it free and clear of any encumbrances. The deed is granted when you have cleared all liens, including the mortgage, from the property. Without having a clear title, selling a portion of the land becomes more complex.
Is It Possible? Do I Need Anyone’s Permission?
You can’t merely make the decision to sell it to a potential buyer without the prior knowledge and understanding of the deed holder, which is usually the bank that holds the mortgage. The lender will have to agree to allow you to sell a portion of the property that is used to secure the mortgage.
If you attempt to sell a parcel of land that you do not own free and clear, your lender can take dramatic steps that risk invalidating the sale and could even call your mortgage due. If you want to sell a piece of your land while you are still paying a mortgage, it is best to contact a real estate attorney in your area to learn about your options. The attorney will carefully review your mortgage and determine the steps you need to take to ensure that a sale goes through without difficulty.
The lender has a lien, legally filed, against your property. You cannot transfer ownership of any portion of that property without the permission of the lender.
Understanding The Due Of Sale Clause In Most Mortgage Contracts
The “due of sale” clause fulfills the purpose of providing security to the lenders in case of any wrongdoing at the hand of the borrower. A “due of sale” clause is a common provision that states that the lender must be paid the entirety of the remaining mortgage if any part of the property is sold. It is often referred to as an “acceleration clause” as it allows the lender to accelerate the mortgage and render it due in its entirety at the time the borrower sells all or part of the property.
Yes, you can sell a part of the land that you have mortgaged, but it is necessary to inform your lender of any changes you plan to make to the deed. Without taking the precaution of getting approval from your mortgage holder, you risk assuming a financial and possibly legal burden. Consult with your lender and a real estate attorney about your options for selling a portion of the land.