Mary Mueller writes that she and her husband own almost six acres in Baltimore County. There's a house on the property, which the Muellers rent to their daughter. The Muellers have a bank loan on the six acres. Mueller wants to subdivide the six acres into two lots, and then sell her daughter one of the lots with the house on it. The Muellers want to retain ownership of the remaining, unimproved lot.
Mueller wants to know about the subdivision process. She also asks, "How can our daughter purchase the property from us with minimal cost? We will not hold the mortgage because we will be putting out about $6,000 to have the property divided."
Dear Mrs. Mueller:
Most Maryland counties - including Baltimore County - regulate the subdivision of land. The county wants to make sure the subdivision will not adversely affect storm water runoff, wetlands, floodplains, forests, roads, other environmental conditions and neighboring properties.
Recognizing that the process of obtaining subdivision approval often is long and expensive, many counties have a streamlined "minor subdivision" process. A minor subdivision allows property owners to subdivide their land into two lots (and sometimes more) without going through all the time and expense of a regular subdivision.
The Muellers' six acres is eligible for a minor subdivision into two lots. The Muellers will have to employ a surveyor and/or a civil engineer to prepare a minor subdivision plan and to make sure the plan meets all county requirements for road setbacks, location of septic areas and wells, storm water management and preservation of wetlands and forest buffers. Apparently, the Muellers have budgeted $6,000 for the cost of obtaining minor subdivision approval. A civil engineer should be able to provide either a fixed cost for the minor subdivision plan or a reasonable cost estimate based on the services provided. Other costs will be incurred for county fees and for installing a well.
A minor subdivision will not be approved overnight. Many county agencies would have to review and sign off on the plan. The civil engineer should be able to estimate the time required, but four to six months would not be unusual.
Once the minor subdivision plan has been approved by the county, the Muellers would have an attorney prepare and record new deeds, which create two separate legal lots. Each lot will have its own legal description and its own tax bill. The Muellers then can convey title to one of the lots to their daughter.
But, remember, the Muellers have a bank loan on the entire property. They can't transfer free and clear title to one of the lots unless the bank releases its mortgage on the lot they convey to their daughter. The Muellers will have to satisfy the bank that the lot they retain has sufficient value to justify the loan balance.
If the value of the remaining unimproved lot is too low, the Muellers may have to pay down the loan or pay it off. They can use the proceeds of sale from the improved lot to pay down their existing loan and obtain the release of the lot and house they sell to their daughter.
Since the Muellers don't want to hold a mortgage, their daughter will have to get a loan from a bank or mortgage company to finance the purchase of the house and newly subdivided lot. She will have to show the lender that she is creditworthy and has sufficient income to pay back her loan.
There are various loan programs, some of which offer low down payments. An experienced loan officer or mortgage broker can advise on the alternatives.