I'm lending money with land as collateral, how to make sure it's buildable?

Question

I'm lending at a 25% LTV on a piece of land in a high end neighborhood.  If I have to take the land back, I want to make sure it's not useless land.

It's in a small high end subdivision on a new cul-de-sac that's already paved, but there are about 10 new lots and none are built on yet in that section.  Water/sewer already appears to be setup on all the lots.  The lot has not yet been cleared.

What are some things I can do to ensure that this land is all that's promised?

Thanks

Daniel Hart · Answer

Thanks everyone - I made the loan.  The plat looked straightforward and everything else looked in order.

Daniel Hart · Answer

Good idea, I probably should check on that since it's in an HOA.  It's a very high end community so I'd imagine the requirements are pretty strict.

What's the risk to me if the builder goes belly up?  (I'm assuming there's none since I'd have a lien on his land)

Daniel Hart · Answer

Corey,
I did pull the recorded plat map and it looks pretty straightforward.  There is a sewer easement that may interfere with a driveway.. not sure if it can go over that.

The lot is not full cleared and graded yet.  My thought is that if the roads are in and the septic/water is in that most of the problems would have been addressed, but I honestly just don't know what else to check.

Daniel Hart · Answer

Jon,
The county assessment is pretty close to the stated market value, and I called a FSBO sign on a nearby lot and the asking price was also in the same ballpark.  I also have a copy of the HUD from the owners purchase.

I will call the city and county today to see what I can find out.  Thanks!

Also, does anyone know what a lender would do on a construction loan to ensure that they are lending on buildable land?

Account Closed · Answer

Is this in an hoa/poa of some kind? 
If so, check all the associated documents, for use ability.   
Be sure the builder didn't go belly-up. The building requirements may be so stringent that no  one would be interested in buying it.

Bart Pair · Answer

Dan,

if it is a new development in a high end neighborhood with an HOA and a recorded final plat of the property you should be in pretty good shape.

The recoreded plat should tell you if it is an actual buildable lot and what if any easements or conservation tracts may encroach on the property.

Wetlands and other environmental factors and archeaological concersn were probably already handled if the development is new.

The only real outlier might be if the lot is in a flood plain.  That isn't a deal killer usually as for a single family lot you only need to bring in fill and do some extra paper work to raise the site.

However, the instance where this is a problem is when stormwater runoff from other properties flows across your site.  Then you can't just bring in fill to raise the site because you would be blocking runoff and flooding others and you may have a real development issue.

If the development is not new - than the wetlands and environmental issues I mentioned above could come into play.

So here is the checklist.

1.  Make sure plat shows buildable recorded lot with no significant encumbrances.
2. Make sure stormwater runoff from other properties doesn't flow across your site that could cause building problems.
3.  Make sure the site is outside a flood zone.
4.  Make sure there are no "new" wetlands or threatened species on your site that could prohibit development.

Oh one other thing - make sure the person your are lending the money to hasn't used this lot as collateral already.  And if you do lend the money record the lien on the property immediately.

Bart

Corey Williams · Answer

Since this is residential and it appears that it has already been subdivided, (based on the cul-de-sac and utilities being in) I would check with the county building department or the planning department first to make sure all of the development permits were obtained.

A bank may want to see a lot survey or a copy of the recored plat showing the property lines and any easements if they exist.

Judging by your question of "if it is buildable" makes me think the developer just laid and road down and didn't do much grading to get the building sites ready.  If it is a low lying area that has water puddling up then you may need to check for wetlands.  If it is next to a ditch or small stream then it may have floodplain over it.

That may not be the answer you were looking for because "Is it buildable" means different things to different people and to me I look at everything including; easements, soil conditions, wetlands, utilities, storm water drainage, etc.  but then again we are developing apartment complexes and not building a single family residence.  If you have something specific that concerns you please let me know.

Jon Holdman · Answer

Speak with the county or city and find out if its actually been entitled to have a building.  Speak with developers, buildings, and realtors who are uninvolved in the area about what they would pay for the lot or sell it for.  County assessments, may give you some clue. They typically break out land and improvements.  I wouldn't necessarily use their values, but if you can compare assessments to similar properties where there were recent sales, adjust the total assessment, then use the land/improvement ratio to back into a land value.