I want to purchase a portion of the parcel currently mortgaged (assuming I get the subdivision and permits approved, etc.). I'm worried that if I subdivide the property and the seller defaults on his mortgage, I will lose my property due to some sort of subrogation? Are there any other risks I should consider? Thank you!
Class Action Attorney
The property will be subject to any encumbrances that were previously recorded, unless those encumbrances are released. The bank's rights will be superior to yours. Also, the seller will probably trigger the due on sale clause in the deed of trust by selling you a portion of the land, meaning that the bank could immediately demand that the entire mortgage balance be paid off, and the seller would be in default if the loans isn't paid in full.
3 lawyers agree
Real Estate Attorney
I agree with the previous answer. I would add that, if the seller can negotiate a partial deed release contract with the lender then you can get marketable title, allowing you to insure and finance the purchase. Otherwise you are risking that your purchase will have no value if the seller defaults.
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