By Robert Nislick
You are a Massachusetts homeowner or landowner. One day, someone offers to buy a portion of your land. You are willing to sell a piece of your property to this buyer. You will need to convey him good and clear record and marketable title to this piece of land. Your property has a mortgage.
In order to grant the buyer good title, you will need to obtain a partial release of mortgage from your bank. What will you likely have to do in order to get the partial release from your lender, so you can ultimately close this transaction?
If you are contemplating a transaction like this, contact Robert Nislick, a Massachusetts real estate attorney, who can handle this for you.
Each bank will have its own requirements in order to grant a partial release of mortgage. Here is a list of some of the hoops your attorney will most likely have to jump through for you:
- Contact the bank and tell them that you have a deal to sell some of your property and you need a partial release. They should send you a list of their specific requirements.
- Draft a partial release instrument for the mortgagee to execute, which is suitable for recordation at the registry of deeds.
- Offer some compensation to the lender in exchange for the partial release. The bank will want to preserve the loan-to-value ratio of its collateral. When the bank releases some of its collateral, it may require the borrower to pay down the outstanding principal of the mortgage. If the value of your land has appreciated since you mortgaged it, and the piece you are selling will not diminish the value of the land to remain subject to the mortgage, then your lender may not require you to pay down any of your principal.
- Provide the bank with a copy of the signed purchase and sale agreement. Note that when you negotiate the purchase and sale agreement, you and your buyer want it to reflect that your ability to close is contingent on your ability to obtain a partial release of mortgage for the land you are selling. You will need to schedule a closing date far enough out, which can be extended, in order to go through the process with your lender.
- Obtain an appraisal which shows the value of the property now, and what the value of the remaining property will be following the sale. Ideally, the value of the remaining property will not be diminished as a result of the sale, but it is certainly possible.
- Provide the lender with a copy of your plan, which shows the property, including the lot to be released. You will have to have a surveyor prepare a subdivision plan that complies with the Subdivision Control Law, G. L. c. 41, §§ 81K-81GG. He may prepare either an approval not required (ANR) Plan, or you may have to go through the process with your local planning board for obtaining approval of a definitive plan.
- Draft a legal description of the land to be released and the land to remain as collateral.
- Provide a title search which shows all liens and encumbrances against the property.
- Draft an authorization that allows your attorney to communicate with the lender on your behalf.
- Provide a current utility bill to show that the mortgaged property is still owner-occupied.
- Provide a copy of your title insurance policy. You will eventually have to obtain a change endorsement from the attorney who wrote the policy, and provide that to the lender.
- Pay an application fee.
Going through this process requires a lot of legwork, but it can be done, and you should be able to close your deal.