From the Ask the Broker Files:

I am interested in buying two acres of property that are part of a five acre parcel that has a mortgage. There is a house on the remaining three acres in which the owners live. How do we proceed with releasing the acreage in which I am interested from the mortgage?

Theoretically the lender could “split” their lien — placing one lien on the home and three acres and a separate lien on the remaining two acres. This is however, extremely unlikely. A more viable solution is for the lender to retain a lien on the home and three acres and release their lien on two acres.

There are several factors at play here, and without knowing more information, it is difficult to answer the question completely and accurately.

Let’s assume the entire property, land and home, was purchased and financed together and the lender has one lien covering both the land and home. In this case, the homeowner would need to petition the lender to release their lien on the two acres you are interested in purchasing. This will likely come down to a pure financial decision on the lien holders part. If they feel they could recover the balance of the loan by retaining a lien on the home and three acres, they may be willing to release the lien on the other two acres. Or maybe not.

There are many factors
to consider in
purchasing a partial lot

Let’s do a little math example:
Current market value of only the home: $200,000
Current market value of the land, per acre: $50,000 (for a total land value of $250,000 — 5 acres * $50K/acre)
Total current market value, land and home: $450,000

The key factor here is what is the current balance of the loan. There will need to be at least $100,000 in equity (2 acres at $50K/acre = $100K) before the lender will even think about releasing part of their lien. In this example, the current amount of the loan would have to be less than $350K. In all probability, given generally declining home values and slow sales, the lender would want to see a loan balance significantly less than $350K. How much less is anyone’s guess, but it wouldn’t surprise me at all they would want to see a remaining LTV ratio (Loan-to-Value) of at least 80%. So in our math example, multiplying that $350K by 0.8 means the loan balance would need to be less than $280K.  The lender may consider all, part or none of your purchase price in their determination — usually part in my experience.

Another factor to consider is how the land has been platted and recorded. The most likely scenario is the 5 acre lot is a single recorded parcel. If this is the case, then a survey will need to be conducted and a request filed with the appropriate county and city governments to split the parcel.

Existing zoning and deed restrictions could prevent splitting the acreage into two or more smaller parcels.

In a nutshell:

• Determine if the land parcel needs to be split — if it even can be.
• Get a current appraisal of both the home and the land values.
• Petition the lender to rework the lien to be held on the home and three acres, in effect releasing the two acres of land you are interested in purchasing.

It is also possible that the land and home were financed separately and are held under different liens. If this is the case, nothing really changes other than there is no need to determine the market value of the home.

Ultimately, it’s all up to the lien holder — at a somewhat significant expense to the seller, who is most likely going to want to pass that cost on to you the buyer.