There is a vacant lot that is being sold as one large parcel. It is in the city I live in and when I called the zoning department they said it was three lots at one time and could be subdivided back into three. The seller is willing to seller finance the purchase. How do you write the contract so the lots can be sold separately after the sale and subdivision? I recall reading about this somewhere but I can’t remember the terminology. The goal is to buy the lot, subdivide it, build on the individual lots and sell the house afterward. It’s my understanding that you can’t build on a lot that is being financed and that is why want the ability to pay off the lots individually.
@jonesmatr said in How to subdivide and sell off lots if you are seller financing?:
It’s my understanding that you can’t build on a lot that is being financed…
Not necessarily. This is how a lot of us will write our contracts when we’re selling with owner financing because we don’t want the buyer to mess up the property, stop paying, and then we have to repossess a less valuable parcel of land… but you don’t have to include this kind of provision.
Given the complexity of what you’re trying to do, I might suggest talking to an attorney about the correct way to handle this. It’s probably not that difficult, but it is an added wrinkle that doesn’t come into play with most simple flips that don’t involve a subdivide.
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@jonesmatr Good to talk to your lawyer. Consider a mortgage, or DOT, with release clauses. As each parcel is sold, part of the seller loan is paid down and that parcel is released. Exact terms to be negotiated. Not sure about the not yet subdivided part. Ask the lawyer. With the plan to build you may also want terms that call for the seller to subordinate to construction financing.
@sean-markey thank you. That was the term I was looking for, a release clause. I’ll have to look into that and putting something in the contract about subordinating to construction finance.
I think Eddie Speed (note school) mentioned the same what Matthew Jones posted earlier. Thanks Matthew. I’m not sure if Eddie will provide the note template with release clause in it if you take his course. I have to check with him as I’m planning to do the same with the lot that I’m working on.
@jonesmatr Also something to keep in mind make sure the seller cannot call the balance of the loan due after you sell the first parcel. There’s a clause name for that but cant think of it right now but I believe you would put this language in the contract memorandum.
Due-on-Sale Clause