Question: I converted a two-family home into condos, and am having trouble selling both units together. One unit is under contract to be sold in a few weeks, but I will not make enough money from this sale to payoff the current mortgage. What are my solutions to this dilemma?
Answer: Don’t fret. Selling both units together was a rare accomplishment even when the real estate market was hot. Nowadays, you are lucky to have one unit sold. Do not lose this buyer waiting for a second to come along, just so you will have enough funds to payoff the mortgage fully.
First, request a partial release of mortgage from your lender. This is a document whereby the bank takes whatever money you can give and releases the sold unit from its mortgage. This allows you to pass clear title to your buyer as required by your contract. However, if you used a large national lender, be ready for red tape or rejection. These lenders typically have lengthy and costly processes to qualify for a partial release, while others outright refuse to issue one, as a matter of practice.
If you are denied a partial release of mortgage, simply refinance the unsold unit with a new lender. Calculate your loan amount based upon the shortage of funds needed to payoff the loan, taking into consideration additional costs such as deed stamps, and recording fees. Try to negotiate a delay of payment of your larger expenses like real estate brokers commission and legal fees, until after you sell the second unit.
Be aware to avoid owner occupied types of loans that carry a 3 business day waiting period before funding. This will add procedural difficulty in coordinating both closings. Similarly, avoid escrowing your tax payments with your new lender as you will need to pool your share with the buyer’s share of upcoming taxes. This tax based marriage usually lasts about a year, until the town catches up to separately assess the two condominium units. Advise your buyer to also avoid escrowing tax payments.