condo conversion and mortgage

[Brad Evans]

What will my mortgage company want to do when I tell them that I am planning to convert my duplex into two units and sell the smaller one?

Thanks,
Brad

[Shawn G.]

I just went through this process and I don't know if I suggest it. The first thing you need to do is to condo documents that can be filed with the county as bylaws that explain how the association is going to split expenses like roof or even as simple as law care. I had a lawyer drawl this up to make sure it was legal and binding. I then had to have an architect due drawings to register all of this with the state. Based on your county you may need to also have an architect drawing of the split so that the property can be legally divided. Once you get through all of this you have to get a partial lien release from your lender and have them review the same documentation. Because you are changing the legal description of the property you will not be able to file the papers without their consent.

If you can make your duplex into two townhouses you are much better off. There are possible issues with building codes based on your county but it is much better for a number of reasons. The big change is that you must have a two hour firewall in most counties for a townhouse and there is only a one hour required for a duplex. Also your line to split the property must have a firewall on all parts of the line.

The largest issue with splitting into condos is if you don’t sell right away. You are going to have one loan on two condos which could put you where I am. Because banks are brainless they go by Fannie and Freddie regulations that say you cannot own both sides of a two unit condo complex. So you cannot refinance the property anywhere. You will need a get a small bank that loans their own money. If you can pay it all off you don’t have to worry about this but here is the interesting thing. Even if you own one side flat out you cannot finance the other based on Fannie and Freddie (brain dead). Of course if your able to make them townhouses you won't have this issue.

Good luck if you find someone to loan on condos in this situation let me know. I have talked to over 70 brokers that thought they could do it but then they read Fannie and Freddie.