Tear Down House With Mortgage
I have a rental property in an up and coming area. I want to tear down the house and build a new home to sell when I finish. The existing rental has a mortgage . The new house will have a substantially higher value. I will be paying cash for all construction costs. Any caveats in tearing down the existing house that has a mortgage?
The caveats I would mention have nothing to do with the fact that the property has a mortgage. Before you do any work, I suggest checking with the municipal Zoning Officer to verify the existing zoning and also to check the zoning history of the property--whether this is a non-conforming use, lot, structure, etc.--that would create problems for you if you tear down the existing structure. Also, check on the municipal procedures--ie, permit for demolition, building permit requirements--and I would expect that the county would be reassessing the property, presumably at a higher value.[ Edited by NancyChadwick on Date 04/19/2004 ]
Get your demo permit and go through the steps.
I should have added that I am a builder and aware of all the zoning and building issues. My concerns are more about tearing down the lenders collateral. But my thinking is as long as I continue to pay the note what they don't know won't hurt them.
I would think that the documentation for your loan would clearly spell out not only what you cannot do but what you must do concerning the collateral (eg, insurance, property taxes, prior written approval, etc.).
Hmmmm Gasoline and a Match!
....just kidding. Just wanted to share the first thing that came to my mind.
I would recommend going to obtain some sort of construction loan that would cover the balance of the existing mortgage. Since you are paying cash for the improvements I think most any bank would lend you money at such a low LTV. You may consider using more of the credit so you can leverage your money more.
If the building process is going to be quick I am not so sure that the bank will even know you demolished a house. It is similar to the DOS clause thing where what you are doing is not illegal but simply violating a contract. The bank isn't going to like it but if they get paid off within a few months then it may not be a problem. When that mortgage is paid off at closing, it will be released and you are good to go.
It's a toss up. I would definatly check with my attorney to see his thoughts.
Quote:
On 2004-04-20 01:36, hibby76 wrote:
Hmmmm Gasoline and a Match!
....just kidding. Just wanted to share the first thing that came to my mind.
Maybe this is not such a bad idea. A friend of mine bought a tear down, went to the city ( fire department ) and asked them if they would like to burn it down for practice in turn they gave him a 50,000 tax credit it might be woryh looking in to.