LA County SB-9 flow of completion and financing

Land & New Construction
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LA County SB-9 flow of completion and financing

Anthony Gallagher
Member since 2019 · 12 posts · 3 votes

Hi! BP Pros!

Im in the middle of a new build in our backyard. It's a detached SFR and we are planning for an SB-9 lot split in the long term.

We currently live in the front house and have a 3.25% 30 year fixed on it that we'd like to keep although we plan to move to this larger new construction and occupy the older front house with other family members in the near term. The lot is currently one lot with what will be two homes on it.

The electrical service needs to be installed and my GC wants to do a Dual gang separately metered service sharing the existing 200 amp box from the front house service. Will this setup allow us to still do a lot split or do we have to have a fully independent electrical service?

I've been in touch with both SOCAL Edison and the City. SOcal Edison says they will do either setup but the independent service is much more involved, expensive and time consuming. The City says they don't really know and defer to SOCal Edison. So from an exit strategy point of view of being able to refinance the new construction without losing the 3.25% rate on the front property, what options do we have?

My gut tells me I eventually have to get fully independent service run to the back new construction... but the process of that is not attractive for our short term occupancy purposes but as far as being able to access the equity we will have in the deal the SB-9 is vital.

After reading this over it is a convoluted question. Apologies but feeling kind of convoluted at the moment! Thanks for any guidance or experience you can share.

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  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 695 votes
    3d

    Anthony, can't help much on the Edison side, but on the financing side here are a few things I'd sort out early.

    While it's still one lot, any new first mortgage has to go on the whole parcel, so a cash-out refi would pay off your 3.25% loan. If you want to pull equity before the split, a HELOC or a fixed second on the existing parcel leaves that first mortgage and rate in place. Some lenders get picky about two separate homes on one lot though, so ask that question up front.

    For the split itself, keep in mind your current mortgage is recorded against the entire lot, back half included. To finance the new house on its own later, your current lender/servicer would generally have to sign off on a partial release of the back parcel. I'd call them before you get too far, because that's often the step that holds things up and not every servicer will agree to it.

    Once the back house is its own legal parcel, it can be financed separately without touching the front loan. At that point the lender and appraiser will look at it as a stand-alone property, so shared utilities between two parcels can raise questions. Worth asking your planning dept what they'll require for the split before the GC locks in the shared meter setup.

    Good luck with the build!

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  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 555 posts · 427 votes
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    Sequence it planning first, GC second. An SB-9 lot split in LA County needs a signed owner occupancy affidavit for 3 years, and you want the split recorded with its own APN before you spend big on the second unit. The tradeoff is a construction loan gets you moving faster but costs more, while waiting on the split can push your build by months. Get the separate meter and address question answered in writting too. I am a licensed broker in Sacramento, happy to be a second set of eyes. DM me.

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  • Max Comperatore
    Technology · New York, NY · Member since 2026 · 71 posts · 19 votes
    3d

    Anthony, Devin's partial release point is the whole deal, so price it. A 3.25% thirty year fixed carries a debt constant near 4.35%. Replacing it at 6.75% on a $600k balance costs roughly $21k of annual interest, and at a 7.0% exit cap that is about $300k of enterprise value vaporized. That is the number you are defending when you argue with the servicer, not the meter.

    Devin is right that any new first mortgage records against the whole parcel. So the sequence is: fixed second or HELOC now, split recorded with its own APN, then standalone financing on the back parcel at 65% LTC or 60% of LTARV, whichever is lower, and a 1.20x DSCR floor at the note rate. Shared service will not kill the split, but the appraiser will treat it as a deferred capex item and the lender will haircut the back parcel's value accordingly.

    Noah's sequencing is correct and the carry math is worse than he implies. Construction interest follows an S-curve, slow draw, steep middle, slow punch list, so you carry 2 to 3 months beyond the build schedule. Budget horizontal infrastructure per pad, not per project: separate trench, conduit, meter, and the utility's line extension fee. On a two pad split that is $40k to $60k you have not priced.

    Question: what is the servicer's partial release premium in dollars, and does it clear the $300k of rate value you are protecting?

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