Land Sales Expert Eric Andrew (https://www.ericandrewsrealtor.com/) discusses selling land which is part of a property that you have a mortgage on. Selling land which ha a mortgage is indeed possible in many cases, just beware that the bank wants to be sure they’re getting paid before you do, and/or that the ale doesn’t depreciate the value of the property they hold the mortgage on. The video describes multiple different scenarios where omeone may want to sell a portion of their land.
Speaker 1: Can I sell land that is part of my mortgage?
Speaker 2: Well, it depends, but yeah, most of the time, yes. If you had a house and a hundred acres, and it had a mortgage on it, first of all, that’d be a very rare mortgage because lenders don’t like loaning money on land-heavy property. But let’s just say, for the sake of argument, you have a hundred acres that’s worth 750,000, and you have a house that’s worth 250,000. At a bare, bare minimum, the bank would agree to do a release amount on the land, so if you wanted to sell 10 acres, the percentage of the mortgage on that would be $75,000. And the bank would probably say, “Yeah, if you sell it for 120,000, we’re going to want 100,000 of that, but then we’re going to release the 10 acres and we’ll lower your mortgage.” So, the bank is in it with you, but they want to get paid before you get paid.
If you were in a situation where it was a house and three acres, and you wanted to sell an acre, they’re going to make sure that that doesn’t diminish the value of the property too much. And then you might be in a situation where it’s not up to the bank. You’re in a subdivision and the subdivision’s a five-acre minimum, and you want to sell an acre to your neighbor. It just might be not compliant with the covenants that you have.
So most of the time, yes, the bank will work with you. It’s not easy. It’s a little bit complicated, but you can still sell land with a mortgage. Usually with a larger acreage property, the bank’s going to do a mortgage for the house and 10 acres, and then the remaining acreage is going to be a separate mortgage. But yeah, before you just make assumptions and list a part of your property for sale, if it has a mortgage on it, you better have a discussion with your bank and find out, what is the release amount?