Homeowner learns the hard way

[Dee Dee]

Just got off the phone with a very irate homeowner. His lender faxed me an order with a 'needed value', and as soon as I looked at the comp sales and county records I knew we had a big problem. 8O
7 months ago he bought the older home on one acre, and at the same time a vacant one acre lot next door to it. The guy has been pouring money into the the separate vacant lot next door to improve it as horse property (barn, excavation, expensive fencing), as if the improvements are an extension of the actual one acre home site. Now he wants to refi his home for $60,000 more than what he paid in February for both parcels, and has done almost nothing to improve the home itself or the one acre that it legally sits on.
Needless to say, he was not happy when it was explained to him that if he gets a new mortgage loan on his house that the appraisal could not include the improvements on the neighboring property unless the plots were legally combined, and even then it was no guarantee that his property would be worth that much more. There are comp sales with homes on two acre horse properties that would suggest otherwise. The guy thought that the refi would cover his improvement expenses and give him an extra $30,000 to fix up the house. :? 8O Not.
The house and one acre are probably only worth about $5,000 more than what he paid for it.
What a terrible lesson. I think this man thought he was building his own little empire and is now in financial trouble simply because he didn't understand how things work.

 

[Mountain Man]

This may be just your begining, as folks start looking to use that magic equity all the LOs and Realtors told them they would have.

 

[Joe Birrell (NY)]

It is incredible how ignorant property owners, buyers, and sellers are. Everyday, they call my office with all sorts of schemes and scenarios. Even the basic fundamentals of buying a home seems to be beyond their comprehension. The conversation is reduced to such fundamental common sense concepts that it constantly amazes me.
On the other hand, the home buying process is completely upside down and totally illogical. First, we find a house, next we sign a contract, followed by a mortgage app, a commitment letter, a closing date, arrangements for the moving van, and a change of address notice to the PO. The last thing we do is ask "What's the value ?"

 

[Pat Butler]

I'm not sure about your state, but in Illinois it is very common for a mortgage to encumber more than one parcel. The legal descriptions of all of the parcels are included in the mortgage documents. It's commonly known as a package mortgage.

Many farms have very complex legal descriptions which encompass all sorts of small areas of land that were purchased over the years. It would be nearly impossible to get financing on a large farm if it weren't for package mortgages.

 

[Farm Gal]

:lol: :lol:
ya-but..

Pat those farmers are paying for commercial loans, not homeowners equity. Different rate structure (and risk).

At least in my neckof the wooods it is nigh impossible to acquire a homeowner rate loan on anything over about 10 acres, never mind that many of the 'suburban properties run 15, 20 and 40. Just TRY making a living wage off 40 acres?!?!?! At least around here: Im-possible!

Would that I COULD get a 5 or 6% on my 160 acres, which is for all practical purposes a 'really big yard'.... :roll:

 

[Judy Whitehead (Florida)]

I also have done appraisals that include more than one parcel and have done residential appraisals on ranches, etc. up to 80-100 acres. These are residential properties and not commercial enteriprises. It's amazing to me how things differ across the country! The only time I have found a problem with encumbering more than one lot was with FHA and even then if the county will combine two lots into one then FHA would accept it and that is exactly what happened.

 

[Dee Dee]

Hi Pat,
Interesting thought, but if there are any such package mortgages in this area, I've never heard of 'em. The county records clearly show two different parcels, each with it's own address but only one with a house on it.

Joe,
I'm with you. I'm floored at how many homeowners have no clue what they're doing with what is probably the biggest financial commitment they will ever make.
IMO, it's basic financial survival information that should be taught in high school, along with understanding how to manage credit and budgeting. Instead the schools opt for teaching everything from religious tolerance to basketweaving. Very frustrating.

 

[Pat Butler]

In our area, most properties outside of a platted subdivision are many times comprised of multiple parcels all tied together with a lengthy legal description.

In fact, did one a few months ago for a guy that bought a property on 5 acres in the country. His initial mortgage obviously encumbered the whole 5 acres. He went to refi and the new lender only wanted to lend money on the 1 acre surrounding his house. He was able to get a 2nd mortgage that only encumbered the 1 acre with the house, while the existing first mortgage included all 5 acres and the house.

Anyone who owns multiple adjacent parcels in our area can have the assessor combine them into one parcel number for tax purposes. The legal description just keeps changing anytime someone adds adjacent land onto their existing property. They can identify their two parcels separately, and keep it that way, or create a new legal that now identifies the outer boundaries of all of their property.

 

[Jo Ann Meyer Stratton]

There can also be situations where there are two or more parcels for tax purposes. Maybe the person purchased one acre but it so happens the front 50' are inside the city limits, the next 50' are in the county within a specific fire district, the next 50' are not in either the city limits or a fire district and the rear 50' is in a differant school district (I have seen parcels like that!). Therefore on the tax records there will be four separate parcels and four separate tax bills. And it doesn't matter how long the lender holds their breath and turns blue, the parcels cannot be combined into one tax bill because of the differant taxing districts. The property can be financed and/or ownership transfered with one deed and even one legal description that would cover the entire property.

 

[Dee Dee]

Doesn't look like this guy is lucky enough that the county recognizes the two lots as being combined in any way.
It's an older platted sub, and these are two distinctly separate lots, at least at this point. The mortgage on the house was for only the dwelling and one acre, and at any point in time the homeowner could legally sell off the additional vacant lot (which now has improvements to support horses). No lender in their right mind would do a refi on the house with both parcels combined and not have legally binding paperwork guarantees that the homeowner couldn't bump up the mortgage amount, then sell off half of the acreage.
Nobody farms crops in my area. The winters are too harsh and the growing seasons too short, not to mention it's nearly impossible to find enough level land in one spot to profitably to do so.
It certainly is interesting to see how different one area of the country can be from another!