# Home construction and mortgage question



## keithsto (Mar 11, 2014)

I have a question for anyone with knowledge about the loan process for building a new home.  I have a 69 acre piece of property that has been in my family for over 100 years.  The land is currently under conservation use for timber (pine trees).  My wife and I want to build a house on this piece of property, but we cannot seem to find a mortgage company willing to take the permanent mortgage because the land is under conservation use.  We have no problem finding a bank willing to do the construction loan for us, but nobody will touch the permanent mortgage.

Since we own the land free and clear, we obviously do not want mortgage to be for the house + the entire tract.  It only needs to be for the house + 5 or so acres for appraisal purposes.  Banks have told us they would not put any additional value on anything greater than 10 acres anyway.

Any advice is greatly appreciated!


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## lagrangedave (Mar 11, 2014)

You need a quit claim deed on a small parcel to separate it from the larger acreage. This will be included with the note. It also gives you built in equity and hopefully lowers your up front money requirement. hope this helps.


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## JustUs4All (Mar 11, 2014)

Be careful about cutting a piece of property off before the covenant ends.  You could breach of the covenant and trigger back taxes and a pretty substantial penalty.


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## woco hunter (Mar 11, 2014)

We do lots of surveys for people wanting to build and like you say the banks like to have around 2 acres. I don't know about the tree conservation program but our county has farm conservation program and it allows up to 5 acre tracts allowed to go to a family member without breeching the contract. Our tax assessor is the one that handles that stuff and we encourage our customers to check with him before possibly messing up their program. I would only borrow on the smallest tract that was allowed by your county if it was me.


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## waddler (Mar 12, 2014)

Perhaps you could trade a few acres to an adjoining neighbor and not impact the covenant. Just have to give a Quit Claim deed to neighbor and get a Warranty deed from him.


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## Dustin Pate (Mar 12, 2014)

waddler said:


> Perhaps you could trade a few acres to an adjoining neighbor and not impact the covenant. Just have to give a Quit Claim deed to neighbor and get a Warranty deed from him.



Not under CUVA you can't. You can sale any portion over 10 or up to an amount that leaves you 10 as well. Additionally, the person buying must agree to keep it under CUVA for the remainder of the 10 year term. If they don't the breach falls to the original owner.

Also, like has been said, you can transfer up to 5 acres to a person within the 4th degree of civil reckoning to the owner(s)...assuming that they build a single family home within a 1 year time frame of the transfer. 

The last option is going to be the way to go for you. Be very careful of a breach. The penalty is twice the tax savings up until that point.

If you want to read up on CUVA the code is O.C.G.A. 48-5-7.4


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## waddler (Mar 12, 2014)

Dustin Pate said:


> Not under CUVA you can't. You can sale any portion over 10 or up to an amount that leaves you 10 as well. Additionally, the person buying must agree to keep it under CUVA for the remainder of the 10 year term. If they don't the breach falls to the original owner.
> 
> Also, like has been said, you can transfer up to 5 acres to a person within the 4th degree of civil reckoning to the owner(s)...assuming that they build a single family home within a 1 year time frame of the transfer.
> 
> ...



Maybe I was not clear. You can give a Quit Claim deed to the Brooklyn Bridge. It does not impact the underlying qualifiers to Fee Simple Ownership. As I said, the transfer does not impact the Covenant at all, since the property is still bound until said Covenant expires. Since the Grantor can only transfer that title which he holds, the deed restrictions on the property are not affected.

Banks willing to give a loan on the property do so knowing that they too are bound by the restriction and if foreclosed, will not get a Warranty Deed with Fee Simple ownership.

The idea was that the neighbor might be OK with the Covenant and wait for the Covenant expiration to inherit Fee Simple.


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## Sargent (Mar 12, 2014)

When does the conservation easement expire?

I'm thinking a little creative financing is in order.  See if the bank will finance the house and keep the paper.  You"ll most likely do an ARM with not-so-favorable rates.   

If a bank won't do it, you can look to a private investor or hard money (if the time until expiration is minimal).  

When the easement expires, you'll be able to refinance via conventional financing.


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## SGaither (Mar 12, 2014)

First step, go see the county tax assessor and determine if any portion of the 69 acres in the Conservation Use Easement can be subdivided out without penalty. If so, then speak with the building and zoning department to determine the minimum lot size for that zoning district. It may be such that could impact the Conservation Use Easement. If it won't then survey out the minimum required to avoid penalty.

For example; surveying and recording a plat of 5 acres for you and your wife out of the 69 acre parcel. The parent parcel, now 64 acres, remains in the family name, trust, LLC or other means while your new 5 acres is solely yours. This will probably be enough for a bank to provide a 30 year mortgage.

I recommend going the route of surveying and platting vs. quit claim because you will have actual boundaries, create a new parcel with clear title, depending upon the county they may require a recorded plat prior to issuing a building permit and address AND should something happen to you and your wife and you loose your house you only loose the house and property it sits on, not the family property.


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## Sargent (Mar 12, 2014)

Sargent said:


> When does the conservation easement expire?
> 
> I'm thinking a little creative financing is in order.  See if the bank will finance the house and keep the paper.  You"ll most likely do an ARM with not-so-favorable rates.
> 
> ...




After giving it some additional thought, this is what I'd do if I were in your situation:

Go for a private mortgage lender.  Most likely a person with a lot of cash laying around who is semi-conservative.  They are getting miniscule returns at the bank.  So, when you offer them 6-8% return, it should have them salivating. 

The terms of the loan will be interest only, with a balloon due a year or so after the easement ends.  At that point, you can refinance (or maybe put an extension clause in there).

In order to protect them from your possible default, and to protect the majority of your family's land, you could put language in the agreement that states:

If default occurs, lender agrees that collateral will be home plus 2+/- acres surrounding home, plus necessary easements (mainly access to the home).  

Lender also agrees that if default occurs prior to the date the conservation easement expires, lender gains possession of the home until expiration.  At that point, borrower will grant a deed conveying the 2+/- acres to lender (RE Attorney will have to craft the details of this).  

Worst case scenario: You lose the house plus a couple of acres, deliverable at a date when there is no possible penalty for violating the conservation easement.  Your family's land is left mostly intact. 

I don't know where you live, but I suspect if you network enough with bankers and other high net worth individuals, you'll find someone to take this bait.  

Heck, I would if I had the money hanging around getting horrible returns. 

There are a lot more details to the transaction, but you get the gist. 
Good luck.


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## Dustin Pate (Mar 12, 2014)

waddler said:


> Maybe I was not clear. You can give a Quit Claim deed to the Brooklyn Bridge. It does not impact the underlying qualifiers to Fee Simple Ownership. As I said, the transfer does not impact the Covenant at all, since the property is still bound until said Covenant expires. Since the Grantor can only transfer that title which he holds, the deed restrictions on the property are not affected.
> 
> Banks willing to give a loan on the property do so knowing that they too are bound by the restriction and if foreclosed, will not get a Warranty Deed with Fee Simple ownership.
> 
> The idea was that the neighbor might be OK with the Covenant and wait for the Covenant expiration to inherit Fee Simple.



You were clear but the fact is there are two options..the ones I mentioned above or

The only other ways in which a breach will not occur is (1) acquisition under eminent domain, (2) sale under eminent domain to a private or public entity, (3)death of the original owner.

There are actually a few more ways but they deal with minerals, agri-tourism, cell towers, illness and age, etc.

Any other way is not allowed under the CUVA. Any deed..quit claim or otherwise alters the parent parcel for Tax Assessors's sake and any name change affects that CUVA.


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## waddler (Mar 12, 2014)

Those options would have to be included in the original subjugation of the land to the Covenant, in which case the Covenant itself excludes the conditional transfer.

48-5-7.4.

(i) If ownership of all or a part of the property is acquired during a covenant period by a person or entity qualified to enter into an original covenant, then the original covenant may be continued by such acquiring party for the remainder of the term, in which event no breach of the covenant shall be deemed to have occurred.


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## keithsto (Mar 12, 2014)

Update:

Spoke with someone at the tax assessor's office and it is not possible to pull out any acreage from the covenant without violating the covenant.  I am 3 years into the 10 year covenant, and I have saved $4k per year in property taxes by being under conservation, so I would owe ~$24k in penalties if I broke the covenant.  These penalties seem to be why banks will not take our permanent mortgage; if we default, they are stuck with the penalties.

The person at the assessor's office spoke of recent dealings with another landowner in a similar situation as mine who ended up going through AgSouth/AgGeorgia.  Supposedly they are more familiar with CUVA and are willing to work with it.  I have a meeting with AgSouth tomorrow.  Hopefully it goes well.


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## Dustin Pate (Mar 12, 2014)

waddler said:


> Those options would have to be included in the original subjugation of the land to the Covenant, in which case the Covenant itself excludes the conditional transfer.
> 
> 48-5-7.4.
> 
> (i) If ownership of all or a part of the property is acquired during a covenant period by a person or entity qualified to enter into an original covenant, then the original covenant may be continued by such acquiring party for the remainder of the term, in which event no breach of the covenant shall be deemed to have occurred.



But they aren't qualified if they aren't family or it is at least 10 acres. 


See the answer above me.

I work with these every day. It is my job.


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## Luke0927 (Mar 12, 2014)

I don't think they know what they are talking about, we were about 3-4 years into this enrollment.

I did this 4 years ago I did the construction loan with a local bank, then did the construction to perm with them also.  It was resold to one of the big mortgage companies...I was also having trouble finding some of the other places to do the construction to perm.  We separated 1 acre and the house from the land in convent, but it still cannot be sold until the next renewal (I had to sign it back into the original covenant for the duration) and I was told by someone at the county that they were taking house and 1 (minimum) acre out from new land conservation enrollments...got have that higher tax!


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## keithsto (Mar 12, 2014)

Luke0927 said:


> I did this 4 years ago I did the construction loan with a local bank, then did the construction to perm with them also.  It was resold to one of the big mortgage companies...I was also having trouble finding some of the other places to do the construction to perm.  I have 1 acre and the house separate from the land in convent on taxes but it still cannot be sold until the next renewal; and I was told by someone at the county that they were taking house and 1 acre out from new land conservation enrollments.



My problem is the entire tract is under conservation and cannot be changed until the covenant is up.


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## Luke0927 (Mar 12, 2014)

keithsto said:


> My problem is the entire tract is under conservation and cannot be changed until the covenant is up.



So was mine....I went up to the county and told them I was building a family home on the land, I surveyed it out it's zoned agricultural residential and was included back in the covenant for the rest of the term.


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## jimbo4116 (Mar 12, 2014)

waddler said:


> Perhaps you could trade a few acres to an adjoining neighbor and not impact the covenant. Just have to give a Quit Claim deed to neighbor and get a Warranty deed from him.



Don't think the Bank is going to loan money on a Quit Claim Deed with out a title search and the CUVA will show up in a title search. 

The owner under the Conservation Covenant can transfer 5 acres to a relative 3 or 4 times removed. Up to a great-great grand child.  Son's wife's family has done this for grand children.  

You don't want to try and beat the CUVA either.  Just had a friend receive a letter that he would be penalized $48000.00 for renting out a house on a property he had in the CUVA.  They gave him 30 days to move out the tenant or pay the penalty.

If this is property in the CRP pine tree program with USDA contact the USDA FSA for your county and talk with them
I think there is some relief there as well.


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