My mortgagor wants to sell a slice of the land. Thoughts?

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astrohip
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My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Fri Aug 09, 2019 9:53 pm

I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
Last edited by astrohip on Sat Aug 10, 2019 11:53 am, edited 1 time in total.
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Jack FFR1846
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Jack FFR1846 » Fri Aug 09, 2019 9:58 pm

If the proceeds are used to pay down the debt to you, sure. If not, no.
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wjo
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by wjo » Fri Aug 09, 2019 10:06 pm

I'd ask questions about the purpose and use of the funds. It could be a sale to a friend, neighbor that could be innocent enough.

Since the land is the principal collateral on the loan, my basic question would be does the sale of the acres reduce the value of the land in a significant way? I would suspect the buyer would want prime land, which might adversely affect the value of the larger parcel. If so, there is no way I would ok this.

I recently closed out an owner finance mortgage - I was the owner. The buyers after three years were able to refi; their three years of payments helped make the case to a bank. (No need to go into details here - it was a good deal for me and the buyers.)

My suggestion would be to recommend that the buyers look for alternative financing to buy you out and carve out the parcel as part of the deal. This way you get to say no but give them a path forward.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by ResearchMed » Fri Aug 09, 2019 10:14 pm

Jack FFR1846 wrote:
Fri Aug 09, 2019 9:58 pm
If the proceeds are used to pay down the debt to you, sure. If not, no.
It depends... would making the lot smaller make it worth less, perhaps zoned for smaller house in the future, or something like that?
It's not really your problem since they own it, unless it causes some sort of default in the future before they pay it off.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by astrohip » Fri Aug 09, 2019 10:17 pm

Thanks for the quick replies... answering some of your questions...

* No, they haven't said they intend to give me the proceeds. :wink:

* I know the parcel they are selling (it was my land for ten years). It won't appreciably change the value of the remaining land, other than it's slightly smaller now. Maybe 3-5% max.

Am I out of line asking WHY?
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Watty » Fri Aug 09, 2019 10:24 pm

There would be lots of headaches and legal fees to allow them to do that. They should at least pay your legal fees.
Am I out of line asking WHY?
Not at all but there is an old saying, "Not my circus, not my monkeys." and you will not really know if they are telling the truth or not and if they are having financial problems they may try to cover that up.

I would just tell them to refinance if they want to sell part of the land. They can likely get a better rate anyway.

I have heard of people that had part of their land condemned where something happened like a road was being widened so they needed to take 10 feet of their property.

The mortage company required that all the money that was paid for the land be used to payoff the mortage which sounds reasonable to me if you do let them sell it.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Dottie57 » Fri Aug 09, 2019 10:29 pm

I would just say no. The entire property is what secures the loan. “Why” is not important - it isnt truly theirs to sell until you are paid the full amount.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Sandtrap » Sat Aug 10, 2019 9:14 am

Dottie57 wrote:
Fri Aug 09, 2019 10:29 pm
I would just say no. The entire property is what secures the loan. “Why” is not important - it isnt truly theirs to sell until you are paid the full amount.
+1
FWIW: I have seen or encountered 3 instances of this. In every case, the seller eventually regretted it in some way.
However, that's just 3 instances from semi-personal experience. IMHO, there's a lot of potential downside complications on your end with no substantial gain. It might end up okay. It's the "might not" end up okay down the line that's the worry.
I would not.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by stan1 » Sat Aug 10, 2019 9:18 am

Easy answer is "no".

But more complicated answer is "it depends" on just about every possible circumstance. For example if this sale would clear up a prescriptive easement or similar condition that can arise on rural property it might well clarify the property value.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Grt2bOutdoors » Sat Aug 10, 2019 9:22 am

astrohip wrote:
Fri Aug 09, 2019 9:53 pm
I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
No way! They don’t own the land until they’ve fully paid for it.
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Gill » Sat Aug 10, 2019 10:41 am

Just to clarify - you are the mortgagee. The other party is the mortgagor.
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 10:59 am

Gill wrote:
Sat Aug 10, 2019 10:41 am
Just to clarify - you are the mortgagee. The other party is the mortgagor.
Gill
Thanks, I've only said that wrong for 60+ years. :oops: How did I never know that?

I've decided to offer them two options: Apply the proceeds against the current balance, or refinance.
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by AZAttorney11 » Sat Aug 10, 2019 11:07 am

If your deed of trust secures the entire property, and it sounds like it does, and if your deed of trust is written like all of the others I've seen, then your borrower is essentially asking your permission to sell your collateral and pocket the proceeds for themselves. No way, no how.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by AZAttorney11 » Sat Aug 10, 2019 11:12 am

Grt2bOutdoors wrote:
Sat Aug 10, 2019 9:22 am
astrohip wrote:
Fri Aug 09, 2019 9:53 pm
I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
No way! They don’t own the land until they’ve fully paid for it.
That's not true. The borrowers absolutely own the land, but they own it subject to a (let's hope) property perfected / recorded deed of trust. The terms of the deed of trust (and other loan and security documents) control what the borrower can and can't do with the property, not the fact that they owe someone money.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 11:16 am

It is a std lien and DofT, properly perfected. They can't sell any of it without a title company seeing them filed at the county, which of course would stop it dead in its tracks.

As I mentioned above, they can give me the proceeds or go out and refi.
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by cherijoh » Sat Aug 10, 2019 11:19 am

astrohip wrote:
Sat Aug 10, 2019 10:59 am
Gill wrote:
Sat Aug 10, 2019 10:41 am
Just to clarify - you are the mortgagee. The other party is the mortgagor.
Gill
Thanks, I've only said that wrong for 60+ years. :oops: How did I never know that?

I've decided to offer them two options: Apply the proceeds against the current balance, or refinance.
You might want to retitle your post to reflect Gill's correction.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by J G Bankerton » Sat Aug 10, 2019 11:27 am

astrohip wrote:
Fri Aug 09, 2019 10:17 pm
Am I out of line asking WHY?
You seem to trusting and nice to be a lender. All the nice banks went out of business and only the Wells Fargos are left. I'm not saying be like Wells Fargo but don't be like one of the banks they bought in the bankruptcy sale.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by HomeStretch » Sat Aug 10, 2019 11:34 am

Good suggestions by other posters.

You said the sale would affect the value by 3-5% of the land which is collateral for the mortgage. As part of the transaction, if the mortgagor doesn’t refinance with another lender, I would want all my expenses paid by mortgagor and at least 5% of the proceeds paid to me to reflect this. I would also want to know the proposed use of the land being sold in case it was something that could detract from the value of the remaining property.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by stan1 » Sat Aug 10, 2019 11:35 am

Why do you want to be essentially operating a business lending money to these people? I'd use their desire to sell some of the land along with low interest rates as an opportunity for you to get out of this "business" and encourage them to get a "regular" mortgage. Seems like a stream of future problems and I would want to get out.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 11:52 am

Some background, that may provide some info to several of your posts. And thanks for ALL the feedback.

This is a piece of property I owned for many years, I am intimately familiar with it. Land sales can take a while in this area, and by owner-financing, I was able to get almost 100% of my asking price. I have a substantial down payment, so I am not worried about default (if so, I'll just re-sell it and pocket the deposit, so to speak).

The slice they want to sell abuts a neighbor, who has always wanted this piece of land. It's only a couple acres, but it squares off the bottom of his property. And it has no bearing on this (my) property. The value won't change at all, other than it will be slightly smaller, hence worth slightly less (<5%). I have no concerns if they want to sell it, for any of the above reasons. The piece is also landlocked, so I know they can only sell it to the neighbor (Texas doesn't allow landlocked property to be sold as is).

I've offered them two options: Sell it and give me 100% of the proceeds, applied to their balance, or go out and refi and pay me off. I'm happy either way. IAC, they'll pay 100% of all costs, legal et al.

Below are some legit questions, that I think I have answered. If not, ask away. I want to make sure I'm not missing any options.
stan1 wrote:
Sat Aug 10, 2019 11:35 am
Why do you want to be operating a business lending money to these people? I'd use their desire to sell some of the land along with low interest rates as an opportunity for you to get out of this "business" and encourage them to get a "regular" mortgage.
HomeStretch wrote:
Sat Aug 10, 2019 11:34 am
You said the sale would affect the value by 3-5% of the land which is collateral for the mortgage. As part of the transaction, if the mortgagor doesn’t refinance with another lender, I would want all my expenses paid by mortgagor and at least 5% of the proceeds paid to me to reflect this. I would also want to know the proposed use of the land being sold in case it was something that could detract from the value of the remaining property.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
cherijoh wrote:
Sat Aug 10, 2019 11:19 am
You might want to retitle your post to reflect Gill's correction.
Good idea. How? I tried clicking, nothing.
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 11:54 am

astrohip wrote:
Sat Aug 10, 2019 11:52 am
cherijoh wrote:
Sat Aug 10, 2019 11:19 am
You might want to retitle your post to reflect Gill's correction.
Good idea. How? I tried clicking, nothing.
Never mind, figured it out.
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by Goal33 » Sat Aug 10, 2019 11:55 am

Well nothing to add here but I think you’ve come to a good path forward. Let us know how it goes.
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by BuffaloBill21 » Sat Aug 10, 2019 12:10 pm

You are within your rights to insist on 100% of the potential sale proceeds.

Two follow up questions: How much is left on the note? What would the potential sale net your borrower?

Perhaps there is common ground where you get a portion of the proceeds and they get to keep some too - or a portion can be used as an offset of future monthly payments. Depends on how nice you want to be...

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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by Goal33 » Sat Aug 10, 2019 12:12 pm

BuffaloBill21 wrote:
Sat Aug 10, 2019 12:10 pm
You are within your rights to insist on 100% of the potential sale proceeds.

Two follow up questions: How much is left on the note? What would the potential sale net your borrower?

Perhaps there is common ground where you get a portion of the proceeds and they get to keep some too - or a portion can be used as an offset of future monthly payments. Depends on how nice you want to be...
While I agree there is probably a common ground... all seems too complicated. It would still benefit the property owner to have their mortgage paid down.
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 12:19 pm

BuffaloBill21 wrote:
Sat Aug 10, 2019 12:10 pm
You are within your rights to insist on 100% of the potential sale proceeds.

Two follow up questions: How much is left on the note? What would the potential sale net your borrower?

Perhaps there is common ground where you get a portion of the proceeds and they get to keep some too - or a portion can be used as an offset of future monthly payments. Depends on how nice you want to be...
About $650K left on note, sale would probably net $15-25K.

I don't want to go partial/split, too much trouble. I did think about using the proceeds against future payments instead of apply against balance, but decided that may let them get used to not paying, and then not have the money when it's time to start paying again (six months or so). While I have no reason to think they are financially in trouble, neither are they sitting fat with money.
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 12:20 pm

BuffaloBill21 wrote:
Sat Aug 10, 2019 12:10 pm
Depends on how nice you want to be...
As JG Bankerton said, I want to be somewhere between nice and Wells Fargo. Fair and balanced... :mrgreen:
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by BuffaloBill21 » Sat Aug 10, 2019 12:24 pm

:D After seeing the numbers this deal does not make sense on your end.

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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by adamthesmythe » Sat Aug 10, 2019 12:51 pm

If it was a mortgage from a bank selling part of the land would not be allowed. What does your paperwork say?

If they are asking you then the implication is that you can say no. If it takes much thinking or consultation- then just say no. They can always refinance if they really want to do it.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Grt2bOutdoors » Sat Aug 10, 2019 12:52 pm

AZAttorney11 wrote:
Sat Aug 10, 2019 11:12 am
Grt2bOutdoors wrote:
Sat Aug 10, 2019 9:22 am
astrohip wrote:
Fri Aug 09, 2019 9:53 pm
I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
No way! They don’t own the land until they’ve fully paid for it.
That's not true. The borrowers absolutely own the land, but they own it subject to a (let's hope) property perfected / recorded deed of trust. The terms of the deed of trust (and other loan and security documents) control what the borrower can and can't do with the property, not the fact that they owe someone money.
Let me clarify what I mean. The mortgage is owner-financed. They transferred the deed upon the closing of the sale to the mortgagor. No question there. If the mortgagor is inquiring or asking permission to sell a portion of the land, it implies that there is a prohibition in the legal documentation. The OP should clarify why would the mortgagor's need the permission of the original owner to effect such a sale of the land.
Last edited by Grt2bOutdoors on Sat Aug 10, 2019 6:10 pm, edited 1 time in total.
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by J G Bankerton » Sat Aug 10, 2019 1:06 pm

astrohip wrote:
Sat Aug 10, 2019 12:20 pm
BuffaloBill21 wrote:
Sat Aug 10, 2019 12:10 pm
Depends on how nice you want to be...
As JG Bankerton said, I want to be somewhere between nice and Wells Fargo. Fair and balanced... :mrgreen:
I know Wells Fargo, you are no Wells Fargo, be careful out there,

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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by nisiprius » Sat Aug 10, 2019 1:28 pm

Astrohip, some of us noticed and are happy with your correction of the thread title. :sharebeer
Last edited by nisiprius on Sat Aug 10, 2019 7:24 pm, edited 2 times in total.
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by dm200 » Sat Aug 10, 2019 2:40 pm

Seems to me that you will be fine as long as:

1. The owners pay for any and all expenses related to this transaction - including your legal fees to make 100% sure your rights are fully protected

2. You are willing to put up with the hassle

3. The loan to value ratio - after the slice of land is sold - is still acceptable to you; OR they agree to pay you some or all of the proceeds reducing the balance of the mortgage.

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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Dottie57 » Sat Aug 10, 2019 2:57 pm

Grt2bOutdoors wrote:
Sat Aug 10, 2019 12:52 pm
AZAttorney11 wrote:
Sat Aug 10, 2019 11:12 am
Grt2bOutdoors wrote:
Sat Aug 10, 2019 9:22 am
astrohip wrote:
Fri Aug 09, 2019 9:53 pm
I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
No way! They don’t own the land until they’ve fully paid for it.
That's not true. The borrowers absolutely own the land, but they own it subject to a (let's hope) property perfected / recorded deed of trust. The terms of the deed of trust (and other loan and security documents) control what the borrower can and can't do with the property, not the fact that they owe someone money.
Let me clarify what I mean. The mortgage is owner-financed. They transferred the deed upon the closing of the sale to the mortgagee. No question there. If the mortgagee is inquiring or asking permission to sell a portion of the land, it implies that there is a prohibition in the legal documentation. The OP should clarify why would the mortgagee's need the permission of the original owner to effect such a sale of the land.
The current owners do not have clear title to the property since I believe most mortgages are secured by the property.

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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by Jack FFR1846 » Sat Aug 10, 2019 3:15 pm

I have sold part of my property to a neighbor. Agreement was that he covered all expenses. In the end the expenses were far more than the cost of the land itself. You don't want to take on any of that cost.

The value of your property is going down with this transaction. The new deeds and plot plans and surveys have to be paid by someone. You want that to not be you. As the holder of the mortgage, it is reasonable to expect some payment, reducing what is owed. I would also wonder if the mortgage has to be re-written since the lot would no longer be properly defined.
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Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 3:18 pm

Grt2bOutdoors wrote:
Sat Aug 10, 2019 12:52 pm
Let me clarify what I mean. The mortgage is owner-financed. They transferred the deed upon the closing of the sale to the mortgagee. No question there. If the mortgagee is inquiring or asking permission to sell a portion of the land, it implies that there is a prohibition in the legal documentation. The OP should clarify why would the mortgagee's need the permission of the original owner to effect such a sale of the land.
Dottie57 wrote:
Sat Aug 10, 2019 2:57 pm
The current owners do not have clear title to the property since I believe most mortgages are secured by the property.
I have a Lien and a Deed of Trust, both secured by the property, and filed with the County as a legal document. No title company would ever issue a title to any or all of this property without getting a release first. So of course they would need my permission to sell of a slice of it.
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Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 3:23 pm

Jack FFR1846 wrote:
Sat Aug 10, 2019 3:15 pm
I would also wonder if the mortgage has to be re-written since the lot would no longer be properly defined.
Yes, the legal description would change, and I would require a new survey. A lawyer would have to draw up new paperwork (Liens, Deeds, etc), and they would have to be filed with the County. I would guess the legal fees would be several hundred dollars, and the survey probably $3-4K.

It hardly seems worth it, for them. I think they thought I was going to say "sure, go ahead", and they could keep the money, and nothing else changes.
"Happiness is not about doing, it’s about being." - R Branson

AZAttorney11
Posts: 549
Joined: Wed Jan 21, 2015 12:12 pm

Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by AZAttorney11 » Sat Aug 10, 2019 4:41 pm

Grt2bOutdoors wrote:
Sat Aug 10, 2019 12:52 pm
AZAttorney11 wrote:
Sat Aug 10, 2019 11:12 am
Grt2bOutdoors wrote:
Sat Aug 10, 2019 9:22 am
astrohip wrote:
Fri Aug 09, 2019 9:53 pm
I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
No way! They don’t own the land until they’ve fully paid for it.
That's not true. The borrowers absolutely own the land, but they own it subject to a (let's hope) property perfected / recorded deed of trust. The terms of the deed of trust (and other loan and security documents) control what the borrower can and can't do with the property, not the fact that they owe someone money.
Let me clarify what I mean. The mortgage is owner-financed. They transferred the deed upon the closing of the sale to the mortgagee. No question there. If the mortgagee is inquiring or asking permission to sell a portion of the land, it implies that there is a prohibition in the legal documentation. The OP should clarify why would the mortgagee's need the permission of the original owner to effect such a sale of the land.
You’re still off.

The mortgagee is entitled to receive payments. That’s the OP. The mortgagor is obligated to make payments. E = entitled to receive and O = obligated to pay.

The mortgagor doesn’t need permission of the original owner. They need the permission of the owner of the beneficial interest under the deed of trust, who just so happens to be the prior owner. And the mortgagor must get consent because any legitimate deed of trust expressly prohibits impairing the mortgagee’s collateral without their express, written consent.

Grt2bOutdoors
Posts: 20976
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by Grt2bOutdoors » Sat Aug 10, 2019 6:07 pm

AZAttorney11 wrote:
Sat Aug 10, 2019 4:41 pm
Grt2bOutdoors wrote:
Sat Aug 10, 2019 12:52 pm
AZAttorney11 wrote:
Sat Aug 10, 2019 11:12 am
Grt2bOutdoors wrote:
Sat Aug 10, 2019 9:22 am
astrohip wrote:
Fri Aug 09, 2019 9:53 pm
I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
No way! They don’t own the land until they’ve fully paid for it.
That's not true. The borrowers absolutely own the land, but they own it subject to a (let's hope) property perfected / recorded deed of trust. The terms of the deed of trust (and other loan and security documents) control what the borrower can and can't do with the property, not the fact that they owe someone money.
Let me clarify what I mean. The mortgage is owner-financed. They transferred the deed upon the closing of the sale to the mortgagee. No question there. If the mortgagee is inquiring or asking permission to sell a portion of the land, it implies that there is a prohibition in the legal documentation. The OP should clarify why would the mortgagee's need the permission of the original owner to effect such a sale of the land.
You’re still off.

The mortgagee is entitled to receive payments. That’s the OP. The mortgagor is obligated to make payments. E = entitled to receive and O = obligated to pay.

The mortgagor doesn’t need permission of the original owner. They need the permission of the owner of the beneficial interest under the deed of trust, who just so happens to be the prior owner. And the mortgagor must get consent because any legitimate deed of trust expressly prohibits impairing the mortgagee’s collateral without their express, written consent.
I stand corrected.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

AZAttorney11
Posts: 549
Joined: Wed Jan 21, 2015 12:12 pm

Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by AZAttorney11 » Sat Aug 10, 2019 6:55 pm

Grt2bOutdoors wrote:
Sat Aug 10, 2019 6:07 pm
AZAttorney11 wrote:
Sat Aug 10, 2019 4:41 pm
Grt2bOutdoors wrote:
Sat Aug 10, 2019 12:52 pm
AZAttorney11 wrote:
Sat Aug 10, 2019 11:12 am
Grt2bOutdoors wrote:
Sat Aug 10, 2019 9:22 am


No way! They don’t own the land until they’ve fully paid for it.
That's not true. The borrowers absolutely own the land, but they own it subject to a (let's hope) property perfected / recorded deed of trust. The terms of the deed of trust (and other loan and security documents) control what the borrower can and can't do with the property, not the fact that they owe someone money.
Let me clarify what I mean. The mortgage is owner-financed. They transferred the deed upon the closing of the sale to the mortgagee. No question there. If the mortgagee is inquiring or asking permission to sell a portion of the land, it implies that there is a prohibition in the legal documentation. The OP should clarify why would the mortgagee's need the permission of the original owner to effect such a sale of the land.
You’re still off.

The mortgagee is entitled to receive payments. That’s the OP. The mortgagor is obligated to make payments. E = entitled to receive and O = obligated to pay.

The mortgagor doesn’t need permission of the original owner. They need the permission of the owner of the beneficial interest under the deed of trust, who just so happens to be the prior owner. And the mortgagor must get consent because any legitimate deed of trust expressly prohibits impairing the mortgagee’s collateral without their express, written consent.
I stand corrected.
:sharebeer

Steven in NC
Posts: 108
Joined: Wed Feb 05, 2014 7:43 am

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by Steven in NC » Sat Aug 10, 2019 7:39 pm

This has the potential of being a real mess and something I am filing away for future consideration. I feel for the holder of the loan. Playing banker sure has it's risk and this is one I wouldn't have thought of. I wonder how a conventional bank loan treats issues such as this? I am guessing some where in the fine print they would prevent this from occurring. Good luck OP...I am afraid this will turn ugly if you say no. It could go off without a hitch but if they sell it and you don't get the proceeds, then they default you effectively "gave" away 2 acres with no compensation. Ughh...

Bacchus01
Posts: 3024
Joined: Mon Dec 24, 2012 9:35 pm

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by Bacchus01 » Sat Aug 10, 2019 9:50 pm

Just a point of reference.

We own a tract of vacant land. The state wanted to widen the highway and take 10 feet of the front of the land as well as use another 10 feet during the construction phase. We negotiated a price of $1,500 for the 1/10 acre they took plus another $1,500 for a temporary easement on the other 1/10 acre.

We had to file something on the lien and with our mortgage holder. The amount we earned for the sale of the 1/10 acre ($1,500) they required that we use to pay on the loan. The other $1,500 for the temporary easement we could keep. We decided to pay on the principle as well. They said this happens all the time and they require that the sale proceeds be applied against the loan.

You should too.

Topic Author
astrohip
Posts: 491
Joined: Tue Dec 21, 2010 4:29 pm
Location: Houston TX

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 9:55 pm

Steven in NC wrote:
Sat Aug 10, 2019 7:39 pm
This has the potential of being a real mess and something I am filing away for future consideration. I feel for the holder of the loan. Playing banker sure has it's risk and this is one I wouldn't have thought of. I wonder how a conventional bank loan treats issues such as this? I am guessing some where in the fine print they would prevent this from occurring. Good luck OP...I am afraid this will turn ugly if you say no. It could go off without a hitch but if they sell it and you don't get the proceeds, then they default you effectively "gave" away 2 acres with no compensation. Ughh...
I appreciate the kind thoughts, but I'm not worried. I didn't say no, I offered two options. And there is no way they sell without me knowing (and getting proceeds), so again... not worried.

Forty years running a business, I learned to avoid saying no if possible, and instead offer options/alternatives. Make *them* choose, so they buy in.

Worst case, they're unhappy with me. Still not my problem. :beer
"Happiness is not about doing, it’s about being." - R Branson

Topic Author
astrohip
Posts: 491
Joined: Tue Dec 21, 2010 4:29 pm
Location: Houston TX

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Sat Aug 10, 2019 9:59 pm

Someone way above asked why I would do this (owner finance). I never really answered...

If you don't need the money, and your investments are rocking along, and you are happy with those investments and their balance & risk, what do you do? This is basically a 4.5% CD, at a time when the going rate was -0-. It's a small chunk of secure return. There's enough down (collateral) so I don't worry about a foreclosure.

I still have no regrets.
"Happiness is not about doing, it’s about being." - R Branson

smackboy1
Posts: 1101
Joined: Wed Mar 14, 2007 9:41 pm

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by smackboy1 » Sat Aug 10, 2019 10:34 pm

astrohip wrote:
Fri Aug 09, 2019 9:53 pm
I hold an owner-financed mortgage on a 30 acre piece of land, with a small house on it. Sold it 3-4 years ago, buyer (couple, 2 kids) has paid on time.

They want to sell a small slice of it, 2 acres, to a neighbor. They asked if it was okay, "they didn't see anything against it in the paperwork".

1) I think it's unlikely the title company would okay it without my permission, I have the typical lien & Deed of Trust against the property, and selling a piece (I think) violates both. Hence, I hold veto power.

2) I wonder if they need money. It's not common for people to sell slices of a property, particularly this size.

My question is: WWBD? Should I okay it? Is it my place to ask why? Should I be concerned that the value of the collateral is going to be slightly diminished?

Your thoughts, plus what am I not thinking of?
This thread is confusing and I believe there are several misstatements.

If I understand the OP correctly, he is the original property owner who sold his property to the buyer. Instead of using conventional 3rd party bank financing, the OP-seller took a promissory note from the buyer to pay for the sale of the property and the buyer-borrower collateralized the loan by giving OP lender a lien on the property itself i.e. buyer took out a mortgage to purchase the property from the seller. The buyer-borrower is known as the "mortgagor", because they took out the mortage to buy the property. The OP lender is "mortgagee", because buyer executed a mortgage in their favor i.e. mortgagee holds the promissory note secured with a lien on the property.

Now to OP's question. OP, as the lender, would have to be nuts to willingly allow the borrower to essentially shave off and sell part of the collateral without being compensated for it. It might only be 5% of the area, but who knows for certain how it will affect the total value of the collateral? For that matter, can anybody guarantee that now or at some point during the life of the loan, the value of the collateral will 100% pay back the outstanding balance on the loan?

As a commercial RE owner, part of one property was taken by eminent domain. The lender bank really didn't have a choice but to approve the taking, but obviously it negatively impacted the collateral. But the bank required the proceeds from the sale put into an interest bearing escrow account. Borrower couldn't touch the money, lender couldn't touch the money. It became part of the security on the loan. When we repaid the loan in full, the funds were released to us.

If I were OP I would require the borrower to either:
1) Put all sale proceeds towards repaying the loan
2) Escrow the sale proceeds and make it part of the collateral

Source: former commercial RE investor and lawyer
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

miamivice
Posts: 1969
Joined: Tue Jun 11, 2013 11:46 am

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by miamivice » Sat Aug 10, 2019 10:44 pm

I am not so sure that the OP has the amount of veto power he thinks he has.

Sure, if he takes the borrower to court, I am sure he can force his way. No questions there.

However, the borrower can record a short plat and transfer of title without involving the OP, no problem. Just write up the appropriate documents, take them to the county recorder, and record them.

What about the title company referenced above? Nothing says that a title company has to be involved in a transfer. In fact, I have transferred properties before without using a title company.

It may not be a "legal" transfer or an "above and aboard" transfer, but there is nothing stopping the borrower from doing what he wants, excepts the threat of a lawsuit.

NYCguy
Posts: 312
Joined: Sun Nov 13, 2016 12:42 pm

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by NYCguy » Sat Aug 10, 2019 11:56 pm

miamivice wrote:
Sat Aug 10, 2019 10:44 pm
I am not so sure that the OP has the amount of veto power he thinks he has.

Sure, if he takes the borrower to court, I am sure he can force his way. No questions there.

However, the borrower can record a short plat and transfer of title without involving the OP, no problem. Just write up the appropriate documents, take them to the county recorder, and record them.

What about the title company referenced above? Nothing says that a title company has to be involved in a transfer. In fact, I have transferred properties before without using a title company.

It may not be a "legal" transfer or an "above and aboard" transfer, but there is nothing stopping the borrower from doing what he wants, excepts the threat of a lawsuit.
Ah, disagree. If the OP has a valid first lien on the entire parcel then any assignment should be subject to that lien - the buyer’s buyer would be screwed.

Title insurance has nothing to do with this scenario.

OP: You should only agree to this if you receive 100% of the proceeds as a pay down on your loan, you think the value of your remaining property is sufficiently over collateralizing your loan and the sale price on the parcel is reasonably fair.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

AlphaLess
Posts: 1554
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky

Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by AlphaLess » Sun Aug 11, 2019 12:01 am

stan1 wrote:
Sat Aug 10, 2019 11:35 am
Why do you want to be essentially operating a business lending money to these people? I'd use their desire to sell some of the land along with low interest rates as an opportunity for you to get out of this "business" and encourage them to get a "regular" mortgage. Seems like a stream of future problems and I would want to get out.
Bingo! We have a winner.

If you think that:
- you have the time,
- the experience,
- the data,
- and all

To compete with the banks, then good luck.
"You can get more with a kind word and a gun than with just a kind word." George Washington

Topic Author
astrohip
Posts: 491
Joined: Tue Dec 21, 2010 4:29 pm
Location: Houston TX

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Sun Aug 11, 2019 9:32 am

smackboy1 wrote:
Sat Aug 10, 2019 10:34 pm
If I were OP I would require the borrower to either:
1) Put all sale proceeds towards repaying the loan
2) Escrow the sale proceeds and make it part of the collateral
Which is exactly what I said I was going to require. Several times, several posts above.
"Happiness is not about doing, it’s about being." - R Branson

Topic Author
astrohip
Posts: 491
Joined: Tue Dec 21, 2010 4:29 pm
Location: Houston TX

Re: My mortgagee wants to sell a slice of the land. Thoughts?

Post by astrohip » Sun Aug 11, 2019 9:38 am

AlphaLess wrote:
Sun Aug 11, 2019 12:01 am
Bingo! We have a winner.

If you think that:
- you have the time,
- the experience,
- the data,
- and all

To compete with the banks, then good luck.
You're over-complicating this.

Time? I get a check once a month. Post it to an Excel spreadsheet I found online, and to my Quicken account (and of course, deposit it). Once a year, I send them the interest info for their tax return (NOTE that for owner financed mortgages, you don't even have to do a 1098; you just put it on both parties returns.) Boom! That's my entire time spent.

"Experience, data and all"? Sure whatever.

If I was out there making mortgage loans to third-parties, then your points could be valid. An owner-financed sale from a financially astute seller... not an issue.
"Happiness is not about doing, it’s about being." - R Branson

Topic Author
astrohip
Posts: 491
Joined: Tue Dec 21, 2010 4:29 pm
Location: Houston TX

Re: My mortgagor wants to sell a slice of the land. Thoughts?

Post by astrohip » Sun Aug 11, 2019 9:47 am

miamivice wrote:
Sat Aug 10, 2019 10:44 pm
I am not so sure that the OP has the amount of veto power he thinks he has.
NYCguy wrote:
Sat Aug 10, 2019 11:56 pm
Ah, disagree. If the OP has a valid first lien on the entire parcel then any assignment should be subject to that lien - the buyer’s buyer would be screwed.
Exactly what NYCguy said. I have a valid Lien, filed with the county, on the entire property as described by survey.

I know the potential buyer well (good friends for 10+ years). He's a smart guy, and even if he pays cash, he'll still want a title policy. No one except mad dogs & Englishmen buys land in TX without a title policy. No. One. And the title search would turn up the lien.

I'm not worried about that aspect of this issue.

Again, my OP question was to garner the collective BH thoughts on this ask. And based on your collective wisdom, I am going to require (if they go thru with it) that 100% of any proceeds be applied to the outstanding balance/principal. Or as always exists as an option, they go refi.

Thanks!
"Happiness is not about doing, it’s about being." - R Branson

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