If I own 5 acres of property but have mortgage on it, can I sell 1 acre to daughter?

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If I own 5 acres of property but have mortgage on it, can I sell 1 acre to daughter?

Last year refinanced my house with VA loan. It is with mortgage company. I live out in rural area. My daughter would like to buy acre off of me to put modular home. This way she can help me out. I am 80 years old and it is hard for me to take care of property. Her husband would be of real help to me. Can I sell them an acre? The mortgage company says that I shouldn’t have to refinance.

Asked on February 26, 2019 under Real Estate Law, Ohio

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

No, you cannot transfer part of the land if there is a mortgage on it. The mortgage is "secured" by all of the property, therefore selling part of it would violate the terms of the mortgage since it would reduce the security for the loan. Further, since the mortgage would predate the transfer and applies to all of the land, title cannot be transferred without eliminating this pre-existing security interest. The bottom line is that earlier interests in land must be paid extingushed (i.e. paid off) before transferring it.

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

No, unfortunately, you cannot. The VA loan is secured by a mortgage on all 5 acres of property; you received the loan based on having 5 acres to provide security for the loan. You cannot reduce the lender's security--you cannot reduce the property securng the loan by 1/5th, thereby reducing the  lender's rights.


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