Owning land is one of the most valuable assets you can have — whether you plan to build a home, farm, invest, or simply hold onto it as its value appreciates. But what happens if you want to sell only a portion of your land while the entire property is still under a mortgage?
This scenario is more common than you might think, especially for owners of larger rural or semi-rural lots. Whether you want to subdivide and sell to a neighbor, family member, or a developer, it's crucial to understand the legal, financial, and logistical considerations that come into play when your land is mortgaged.
In this in-depth article, we’ll walk you through everything you need to know about selling part of your land while you still have an active mortgage. We’ll also help you avoid pitfalls and make informed decisions that protect your investment and financial future.
Why Would You Want to Sell Part of Your Land?
There are many reasons property owners decide to sell a portion of their land:
- Raising cash for personal needs, investments, or emergencies.
- Downsizing to reduce maintenance responsibilities.
- Monetizing unused land that no longer serves a purpose.
- Gifting or selling land to family members or friends.
- Complying with zoning or estate planning strategies.
Whatever your reason, selling part of your land can be a smart financial move—if done properly.
Can You Sell Land With a Mortgage?
The short answer: Yes, but you need your lender’s permission.
When you take out a mortgage, your lender places a lien on your entire property as collateral. This means you don’t have full freedom to sell, subdivide, or otherwise alter the legal boundaries of your land without involving them. If you try to do so without notifying the lender, you could be in breach of your loan agreement.
Most mortgages contain a "due-on-sale" clause, meaning the lender could demand full repayment of the mortgage if part of the property is sold without their approval.
So while it's legally possible, it’s not a decision you can make alone. The key is working closely with your mortgage holder and understanding your rights and obligations.
Step-by-Step: How to Sell Part of Your Mortgaged Land
Let’s break down the process into manageable steps so you can approach it with confidence.
1. Review Your Mortgage Documents
Before doing anything else, locate and thoroughly read your mortgage agreement. Look for sections relating to:
- Property modifications or subdivisions
- Due-on-sale clauses
- Collateral definitions
- Prepayment penalties or fees
Understanding your lender’s rights and your limitations is essential before taking the next step.
2. Contact Your Mortgage Lender
Once you understand your mortgage terms, contact your lender and explain your intent to sell part of the property.
You’ll need to request a “partial release of mortgage,” which allows the lender to release their lien on the section you want to sell while maintaining their interest in the remaining portion.
Expect your lender to require:
- A current appraisal or survey of the land.
- Details about the new parcel you intend to sell.
- Information about how the sale will impact the loan-to-value ratio (LTV).
- Proof that the remaining land still provides sufficient collateral.
Some lenders may deny the request if they feel it jeopardizes their loan security. Others may approve it with certain conditions, such as using part of the proceeds to pay down the mortgage.
3. Hire a Licensed Surveyor
You can’t sell what you can’t define. A licensed land surveyor is needed to:
- Map out the exact portion of land you want to sell
- Ensure compliance with local zoning and setback requirements
- Provide legal descriptions for future deed transfers
Surveys are also essential for the lender’s review and any local government approvals required during subdivision.
4. Check Local Zoning and Subdivision Laws
Many jurisdictions have specific rules around subdividing land, such as:
- Minimum lot sizes
- Road access or frontage requirements
- Environmental restrictions (wetlands, protected areas, etc.)
- Easements and utility rights-of-way
Visit your local planning or zoning board to determine what's allowed and what applications may be needed.
Depending on your location, you may need:
- A subdivision plat approval
- Rezoning or conditional use permits
- Utility access verification
- Soil tests or septic system inspections
This step can take several weeks or even months, so plan accordingly.
5. Secure the Partial Release of Mortgage
If your lender agrees to the partial release, they’ll issue a legal document confirming the release of the lien on the parcel being sold.
Important: This document must be recorded with your county or municipality to make the transaction official.
6. Work With a Real Estate Attorney
Because selling part of mortgaged land involves multiple stakeholders—your lender, surveyor, local government, and buyer—it’s smart to involve a real estate attorney.
An experienced attorney can help:
- Draft or review the sale agreement
- Handle title work and liens
- Coordinate with your lender’s legal team
- Ensure proper legal descriptions and deed transfers
- Avoid potential zoning or liability issues
This professional guidance can save you time, money, and legal headaches.
7. Close the Sale
Once everything is in order—surveys, zoning approval, lender consent, and legal paperwork—it’s time to close the deal.
The closing will typically include:
- Transfer of funds
- Filing of the new deed
- Filing of the mortgage release
- Updated title insurance
Depending on your lender’s conditions, some or all of the sale proceeds may be applied to your remaining mortgage balance.
What If the Lender Says No?
If your lender refuses to grant a partial release, you have a few options:
1. Pay Off the Mortgage First
This gives you full control over the property. If you have the resources to pay off the loan, you’ll be free to subdivide and sell as you wish.
2. Refinance or Restructure
You might be able to refinance your mortgage with a new lender who is more amenable to subdivision or selling portions of the property.
3. Sell the Entire Property
If you can’t split the land, selling the entire property and purchasing a smaller parcel afterward might be a better route.
Financial Considerations
Selling a portion of mortgaged land can affect your finances in several ways. Consider the following before making your decision:
1. Impact on Your Loan
Your remaining mortgage might need to be restructured to reflect the smaller land parcel. This could affect your loan balance, interest rate, and payment schedule.
2. Capital Gains Taxes
Depending on how long you’ve owned the land and your total gains from the sale, you may be liable for capital gains taxes. Consult a tax advisor to plan for potential liabilities.
3. Closing Costs and Fees
Don’t forget to factor in:
- Survey costs
- Legal fees
- Title and escrow fees
- Local transfer taxes
- Government filing and recording fees
4. New Property Value
After subdividing and selling, your remaining land might be worth less—or more—depending on the market. Appraisals and updated comps can give you a clearer picture.
Common Mistakes to Avoid
When selling part of your mortgaged land, beware of these pitfalls:
- Skipping the lender's approval. This can violate your mortgage and put your entire property at risk.
- Failing to check zoning. Selling land that’s not legally buildable can create disputes or legal issues.
- Not updating legal records. Ensure all deeds, surveys, and mortgage documents are properly filed and recorded.
- Underestimating costs. Between legal, surveying, and government fees, partial land sales can cost several thousand dollars.
- Overlooking long-term impact. Losing access to a road, utilities, or natural resources on the sold land could devalue your remaining property.
Final Thoughts: Is It Worth Selling Part of Mortgaged Land?
Selling part of your land while it’s under mortgage is certainly possible — but it’s not a simple matter of finding a buyer and signing a contract.
You’ll need to:
- Get lender approval
- Comply with local regulations
- Hire professionals (surveyors, attorneys)
- Prepare for potential financial consequences
However, if done correctly, it can be a smart move. It can reduce your debt load, free up cash, and allow you to make the most of your land investment.
At Sundial Lands, we believe in helping landowners make informed decisions about their properties. Whether you’re considering buying, selling, or subdividing, our team is here to guide you every step of the way.
Need Help Navigating Your Land Sale?
If you're unsure whether selling part of your land is the right move—or you want to find out if your property qualifies—contact Sundial Lands for a consultation.
Our land experts specialize in helping property owners unlock the full potential of their land, no matter where you are in the process.
Don’t leave money on the table. Let us help you make the most of your land today.
