Yes, you can! But, before you exchange funds for a Deed, you should investigate a few matters.
Recently, our firm addressed a number of considerations when a client struck a bargain with a neighbor to acquire a few feet of that neighbor’s side yard. Our client wanted to construct a large outbuilding on his property; however, the topography was such that his existing property lines and zoning regulations would not allow him position the new structure in a suitable location. Our client and his neighbor were on good terms, and they entered into an oral agreement for the purchase of a small part of the neighbor’s land on which the client would construct his outbuilding.
Our client engaged us after the preliminary meeting of the minds with his neighbor, and we began our due diligence on behalf of the client.
Fortunately, our client had already reviewed the set-yard setbacks under the local zoning ordinances to determine how close to the new property line he could build his outbuilding. The client had the foresight to hire a surveyor to provide a survey of the property lines as they would exist with the proposed new property line.
Having a survey made it easier for our firm to draft a short but effective written contract for the sale of the small parcel of property (the written contract would become important later when we dealt with the neighbor’s mortgage company). The survey also revealed that the area of the remaining, large portion of the neighbor’s property would not violate the zoning requirements of a minimum lot size.
Next, our firm conducted a title examination. The title examination confirmed that the neighbor was the actual record owner and that there were no judgment liens. In this case, we would be dealing with only the owner and his spouse – there were no estate concerns, other relatives or other co-owners which may have had an interest to convey to our client. We also retrieved and reviewed the restrictive covenants. The covenants did not prohibit the conveyance of any part or portion of any of the lots in the subdivision. The title examination did reveal a standard mortgage lien.
Since there was a lien on the property (the mortgage), we advised our client to obtain the mortgage lender’s written consent for the conveyance and a release from the mortgage lien of the portion of the property our client was purchasing. Before a mortgage lender will release a portion of their collateral in a transaction similar to the one described in this example, the mortgage lender will usually require several items:
- A written contract
- A survey or other accurate depiction of the property
- An appraisal of the property (to insure that the property retained by the seller-neighbor has sufficient value).
In some cases, the mortgage lender will require a fee to be paid to review the transaction and an additional “release fee” or “release price” to be paid. The consent for a release from the mortgage lender is usually not unreasonably withheld, but the approval process usually takes in excess of 30 days.
Fortunately in these types of conveyances, time is not of the essence and all parties have time to accomplish their due diligence.
If the restrictive covenants had prohibited this type of transaction, we may have been required to obtain consent from adjacent property owners to move forward.
If a conveyance of this sort is made without a release of the property from the neighbor’s mortgage lien, should that mortgage ever be foreclosed, our client’s interest would also be foreclosed. Additionally, selling a portion of the property without consent of his mortgage lender would most likely trigger a default under the terms of the neighbor’s mortgage terms.
Published on August 25, 2016