Land Transactions: Partial Lien Releases

A partial lien release is a way of splitting up a mortgaged property. Imagine you own 3 acres of land, and a developer approaches you with an offer to purchase one of those acres for a construction project. By completing a partial lien release, your lender can allow you to sell that acre while continuing to hold a lien on the remainder of the property until you pay off your mortgage for that portion. 

So, you can think of a partial lien release as the legal contract necessary to carry out a transaction that affects the amount of property or the property rights that are securing your mortgage. Examples of such transactions include:

• Selling part of a mortgaged property
• Subdivisions (dividing a property into separate portions for sale or development)
• Easements (access for utility employees, public access, private access, etc.)
• Additions of land
• Leases of oil, gas, or mineral rights
• Condemnations and eminent domain (when the government seizes private property for public use)
• Partitions (dividing a property among co-owners)
• Property substitutions (swap the property held as security for your mortgage with a new property)
• Leases for semi-permanent structures (winder turbines, cell towers, etc.)

Eligibility

The eligibility criteria for a partial lien release will differ depending on the type of transaction you’d like to carry out. But, for most transactions:

• Seasoned: At least 12 months must have passed since your mortgage was originated
• Current: Your mortgage must not have been greater than 30 days past due more than once, or otherwise in default, during the last 12 months
• Loan to value (LTV) ratio: The ratio of your mortgage’s unpaid principal balance to your property’s value after the transaction must be acceptable—typically, under 60%
• No release of liability: The transaction must not result in a borrower (someone listed on the mortgage) being released from liability on the mortgage
• Lien priority: The priority of the lender’s lien cannot be affected by a subordinate lien
• Accessible: The property must remain accessible by public roads
• If there’s cash consideration (you’re paid in the transaction):

• Any decrease in property value from the transaction cannot be greater than the amount of money you receive
• The cash consideration must be equal to or greater than the fair market value of the part of your property being released from the lien
• After subtracting the costs of completing the transaction from the amount of money you received, you must use any remaining funds to either pay down your mortgage or improve your property

Getting Started

We’re here to help you. However, the process of getting a partial lien release can be complex, and we can’t advise you on the best way to complete a transaction, any tax implications, or legal or zoning regulations. We recommend that you work with a real estate attorney or title agent—they’ll guide you through the whole process and help you with all the documentation.

To get started, you can email your request for a partial lien release to mortgage-amendment@carringtonvm.com. Please include:

• “Partial lien release” in the subject line so we can get your request to the right representative and begin helping you right away
• An explanation of the proposed transaction in as much detail as you can provide

If you’re working with a real estate attorney or title agent, make sure to add them as an authorized third party so we can communicate with them directly.

From there, we’ll work with you and your attorney or title agent to complete the transaction. 

Initial Required Documents

The list of documents you’ll need to collect and submit to us before we can review your request will vary depending on the transaction at hand, but commonly required documents include:

• A survey or plat depicting your property, the location of and proposed modifications to the land affected by the transaction, and the location of all structures on your property
• The original and revised legal description of the property
• A letter of intent from you or a copy of the purchase agreement
• A copy of the draft release instrument or modification agreement—your attorney or title agent will help you prepare this document, and there are certain legal requirements to the document that we can discuss with them

Other Required Documents

Once we receive and review the initial documents above, we can help you gather the remaining documents we’ll need to approve the transaction, which often include:

• If Fannie Mae owns your mortgage, Fannie Mae’s Form 236
• If Freddie Mac owns your mortgage, Freddie Mac’s Form 715
• For most transactions, documentation of a recent appraisal (explained below)
• Proof of recordation: after we approve your partial release, and your attorney or title agent helps you record the transaction at your county recorder or land records office, you’ll need to send us a copy of the recorded document(s)
• Proof that all applicable tax authorities were notified for adjustment of applicable assessments of the property

We accept copies of all documents by email at mortgage-amendment@carringtonvm.com or by mail at:

Carrington Mortgage Services, LLC

9450 SW Gemini Dr.

PMB 28754

Beaverton, OR 97008

Fees and Costs 

Although Carrington does not charge any of its own fees for partial lien releases, we’ll likely have to order an appraisal for you as a condition of approving the transaction. The cost of an appraisal will depend on your location, property, and market conditions, but could cost up to $1,200 or more. We’ll notify you of the cost and get your approval before ordering an appraisal on your behalf. The same goes for a title search, which often costs around $250 but varies depending on the location of your property. 

Certain transactions might require other fees as well. Your attorney or title agent can help you identify any specific fees based on your particular transaction.

Also, if the unpaid principal balance on your mortgage is too high to complete the transaction (i.e., you do not have an acceptable LTV ratio), you’ll have to pay down your mortgage’s principal to an acceptable level before proceeding. In that event, we’ll let you know the amount of principal you need to pay in the transaction.

To recap, the fees and costs you’ll likely need to pay include:

• Appraisal: up to $1,200 or more (non-refundable)
• Title search: around $250 (non-refundable)
• Transaction-specific fees: ask your attorney or title agent
• Principal-reduction payment: we’ll let you know if this is necessary, and the amount needed

Questions?

For any questions or requests relating to land transactions or partial lien releases, don’t hesitate to email us at mortgage-amendment@carringtonvm.com.