Real Estate - Partial Release Calculation Question

[FamilyFriendlyLife]

Hoping some of you familiar with the real estate industry might be able to shed some light on this question. Here is the scoop:

We have a mortgage currently secured by a house on a small parcel of land, and an adjacent building lot. These two parcels are deeded separately. We are interested in selling the building lot, for which we have no use (and could really use the positive cashflow to offset some major lead paint remediation renovations on another home we own and live in).

The big question is how much, if any, of the mortgage would we need to pay off with the sale of the land only. Called the mortgage company, and the Partial Release department wants $500 and up to 8 weeks to tell me if I will have to actually pay off any of the mortgage upon selling the parcel.

I think we will go ahead with the land sale, but would really like to have some estimate of what we might need to put toward the mortgage with the sale. Does anyone know if there is a basic calculation commonly utilized to make this sort of determination?

On last appraisal, the two parcels combined were valued at $252,400 (this was pre-real estate slump). The mortgage balance is about $184,000.

Thanks in advance for any help!

Kim

[Caneel]

Based on my real estate/banking experience, you will need to keep the amount of the mortgage as compared to property value in balance but there are a number of things you need to consider prior to the sale.

For example, the bank I worked at would loan up to 80% of the property value.

Using this guideline (only as an example because your bank may be different), your current balance of $184,000 is 73% of your property value.

At this point, you need to get a good handle on how much your house is worth seperately from the vacant parcel. The value of your house (the remainder parcel) will determine how much you will need to pay down your mortgage.

What is the sale price of the vacant lot?

Depending on real estate values in your area, selling the vacant lot may have very little impact on the overall value of the remainder (assuming a rising market) or it may have a big impact on the value of the remainder.

Another thing to consider is how much of the $242,400 appraised value was allocated to the vacant lot? If it was $20,000, chances are you could sell it and pay little if anything to the mortgage company in return for the release. If the lot is worth $60,000, you may need to give them a large chunk of the proceeds.

I worked in the commercial area of banking and I know the bank charged at least $300 for mortgage releases so I am not too surprised to hear a fee of $500.

The reason the Partial Release Department wants so much time is for the relates to my statements above. They will evaluate the before the vacant land sale and after value of your property and use the difference in determining how much, if any, you will need to apply to your existing mortgage.

I probably gave you too much information that may be confusing so post again with more questions.

[FamilyFriendlyLife]

This is great information; thanks so much for taking the time to respond! Off to seek out detail from previous appraisals to determine value of lot.

We are not averse to paying off some of the mortgage on this property, was just hoping to have a sense of what the payment would be (without dropping the inevitable $500). Comparable acreage in this area is going for roughly $75K, so we would try to get about that. A builder recently offered us $50K cash for the property. Posted the land on craigslist last night at $74,500; one interested party thus far...

[Caneel]

It would be great for you if you didn't need to pay anything down in return for the release, which could happen.

You say "just hoping to have a sense of what the payment would be" Do you mean a lump sum payment to release the land? Because your monthly mortgage payment won't change unless you have the loan re-amortized (which nearly always means re-financing).

[FamilyFriendlyLife]

Originally Posted by Caneel

Do you mean a lump sum payment to release the land? Because your monthly mortgage payment won't change unless you have the loan re-amortized (which nearly always means re-financing).

Just referencing the lump sum; looking to guesstimate this figure to determine what (if anything) would be left from sale proceeds to put toward another project. As we are likely selling regardless, should probably just go ahead and put up the $500 for the partial release department to start working their magic.

[lucyem]

We did this. We were dealing with much more acerage and it was obvious from the get go that the mortgage was less then the value of just the house and a few acres. It took about 4-5 weeks. There was a bank fee of $150 and then lawyers fees & town fees since in our case it was not a seperate lot and we had to subdivide and get permission from the town too. We did not have to have an appraisal.

You are probably going to have to get an appraisal, well it sounds like the bank will do one (the $500 fee) before they can tell you what you will have to pay off on the mortgage. You know you might want to see if you can get a copy of the appraisal that was done when you bought the house. That will tell you how much the land vs the house was then. Things change and are obviously pretty crazy now. But it would give you a place to start and maybe some idea of what they will do.