Sub-division legal help

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4mo

U dont need an attorney for this.

what you want to do is simply go the planning department of the city or county that has jurisdiction and talk to a planner at the counter.

this will give you the basic's.. then you would want to hire a local surveryor or engineer that does this kind of work . its pretty straight forward really.

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

4mo

Quote from @Jonathan Rempel:

Hello! I’m looking for some support in the Everett, WA area, specifically a real estate attorney recommendation, that can walk me through the process of sub-dividing my property.

I still have a mortgage and I haven’t contacted my lender yet, but I should have the equity with appreciation that I hope that they will be willing to release this portion of my property.

Additionally, this portion of my property I want to sub-divide is just as large (if not larger) than my neighbor’s property. That property was a gift from the previous owner of my property and they roughly quartered out a section of the larger property for them. So I know the city supported this in the past although that was a number of years ago.

How would I go about understanding the process to subdivide, what the city will need permit wise, will have I have to pay to bring in utilities, etc. So my best option, from my brief read on the forums, is to find a RE attorney to help me out. Any guidance/contacts would be great!

What Jay said. Although I'm going to be the wet blanket and say I'd be surprised if your lender lets you carve off part of their interest. If you have the means, I think the easiest route is to pay off your lender, do the carve out (that's pretty easy assuming zoning allows it), then re-mortgage the house assuming you want those funds back in hand.

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Jonathan Rempel

OP

Everett, WA · Member since 2016 · 17 posts · 3 votes

4mo

Thank you both! From what I can see locally (and this is without a more formal comp analysis) and from what my lender sends me they estimate my home value at, even if I subdivide, my home should be worth $100k more than what my initial mortgage was for, not including the equity I have in my property.

The intent for me is to do a 1031 with the sale as I’ve owned my property for 5+ years and purchase land to build on; keeping my current property as a rental for my kids someday.

Feel fee to tell me that I need a reality check and I can’t do this in the real world. I’m totally open to the hard facts.

I’ve only really started looking at this idea when an investor friend of mine said I should explore it but of course couldn’t help me with any details!

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4mo
Quote from @Jonathan Rempel:

Thank you both! From what I can see locally (and this is without a more formal comp analysis) and from what my lender sends me they estimate my home value at, even if I subdivide, my home should be worth $100k more than what my initial mortgage was for, not including the equity I have in my property.
The intent for me is to do a 1031 with the sale as I’ve owned my property for 5+ years and purchase land to build on; keeping my current property as a rental for my kids someday.
Feel fee to tell me that I need a reality check and I can’t do this in the real world. I’m totally open to the hard facts.
I’ve only really started looking at this idea when an investor friend of mine said I should explore it but of course couldn’t help me with any details!

It's not that it can't be done, it's that there's no legitimate reason for your lender to allow you to withdraw equity from the house without any benefit to the lender. Whatever your house is worth now, it's worth even more with the extra property. Let's say the property is worth $100k right now and your house is worth $300k, and originally the whole shebang was worth $200k and you got an 80% LTV loan of $160k. Today the lender has secured interest in a property that has a 40% LTV. If they let you carve off the property, they have a secured interest in a property that has a 55% LTV. Not a huge difference but the first number is better for the bank's books. They would be at greater advantage to allow you to take a 100k HELOC to access that equity than just let you carve it off scot-free.
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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

4mo

@Jonathan Rempel, Once the legal entitlements are in place for the split, talk to a different lender about a refinance on the property as split.

If you want to 1031 the new lot then it might be as simple as simply paying off the loan in full at closing. Or it would certainly be fine to ask the current lender for a partial release. But a 1031 shouldn't be a problem at all.

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April Patterson

Real Estate Broker · Serving Snohomish Skagit Island, & Whatcom County · Member since 2024 · 10 posts · 5 votes

4mo

You should connect with Mike Appleby at Chicago Title. He is a wealth of information and always happy to help. New laws make this process so much easier. Mike is always willing to chat with folks about building their wealth and creating more opportunities for homeownership.

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

4mo

1)You won’t get the bank to release the property, why would they? What’s in it for them? You can talk about the extra equity but to say that the. You’d have to think if you ever had negative equity the bank could call it due. And nobody thinks that. It’s similar to when people want one name taken off a loan because the other is making the payments. No lender upside.

2) Is this your primary home? Is so. A) You can’t do a 1031 B) You don’t want to anyway if you can make it tax free under section 121. (An expert would have to weigh in on that.) C) you couldn’t do a 1031 anyway to land to build a new home for you to live in.

TLDR: Talk to planning and find out if you can do it. Be prepared to pay off the existing mortgage and get a new one for the remaining property you keep. If it’s not a rental find out if you can take any of the gains tax free under 121. You can’t do a 1031 to land to build yourself a home on anyway.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3mo
Quote from @Bill B.:

1)You won’t get the bank to release the property, why would they? What’s in it for them? You can talk about the extra equity but to say that the. You’d have to think if you ever had negative equity the bank could call it due. And nobody thinks that. It’s similar to when people want one name taken off a loan because the other is making the payments. No lender upside.
2) Is this your primary home? Is so. A) You can’t do a 1031 B) You don’t want to anyway if you can make it tax free under section 121. (An expert would have to weigh in on that.) C) you couldn’t do a 1031 anyway to land to build a new home for you to live in.
TLDR: Talk to planning and find out if you can do it. Be prepared to pay off the existing mortgage and get a new one for the remaining property you keep. If it’s not a rental find out if you can take any of the gains tax free under 121. You can’t do a 1031 to land to build yourself a home on anyway.

I have seen bank/lenders release a portion but ONLY with a cash payment they have rules they follow for these situations when asked by and owner. Most of the time its just no.. but it can happen on occasion but not just for equity they will want a cash paydown on their note
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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

4mo

Also realize size of lot is just one component of subdividing a property as there is frontage involved - setbacks and potential right of ways etc.

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Jonathan Rempel

OP

Everett, WA · Member since 2016 · 17 posts · 3 votes

4mo

Thank you all for the advice! I ended up going by the city today and talked with the planning department. They said I couldn’t do a normal sub-division anyhow as the parcel would end up being slightly under 5000sqft using their mapping tool.

They did say though that there are new rules in WA regarding some type of unit division that everyone is trying to work through. I’m not entirely sure I have that verbiage correct. But some people have done some really small unit divisions as long as the property ends up meeting yard size requirements and some other things when the developer builds. Interesting stuff.

So that may be a future avenue but the idea (although it sounds like the only way to do this) to pay off the lender isn’t feasible for me at this time unfortunately. This is currently my primary residence and self-funding $400k to do that isn’t possible.

I guess I just deal with the frustration and maintenance of a part of my property that isn't really useable without self-developing as an ADU for rental purposes; apparently ADUs are really easy to get approved these days in my city.

Again thanks for the advice everyone and I’ll definitely get in touch with Mike; thanks April!

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Henry ClarkPro Member

Developer · Member since 2020 · 4k+ posts · 4k+ votes

4mo

OP. The discussion has helped narrow your options down really well.

1. Your kids don’t want the rental in the future. They will want the money for their desires. If you’re wanting a future financial consideration for them. Go to a different Financial forum and post how to invest for your kids.

2. Since you can’t do a 1031 on a primary residence go another direction. Either work thru this small division or whatever it is. Keep in mind there are several reasons your subdivision will not be allowed. Easements, no entrance allowed, potential lot size not allowed as mentioned, minimum square footage, zoning requirements. Etc.

3. Make a separate post. With the extra land and some pictures. Ask what value add ideas folks have. For example. If you’re in a highly congested area, parking may be really valuable. You might just add extra parking or a nice roundabout. Or in the Deep South add a swimming pool if that is a positive value add. Invest $10,000 to get $20,000 example. I would ask a local realtor what would make the property sale faster and higher.

4. Sale and use the 2/5 years capital gains up to $250,000 per spouse or if more owners are listed. Also ask for more specific tax advice if your military.

5. IF you ever decide to get into REI on a continuing basis be very nice and treat your Banker as a team member. Do t rate shop for 1/4 point example. We had 8 acres tied to an SBA loan we did 4 years ago. Got both the SBA and local Bank to allow us to split the property into two 4 acre lots. It also depends on your wealth if you give a Personal Guarantee on the loan.

You have a lot of options just have to figure out what they are. Go to a local REI meet up and discuss. Also talk with an Agent.

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Sub-division legal help

Sub-division legal help

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