Why wouldn't my bank release the title for subdivision

[mimimao]

Hi all,

This is my first development (3 townhouses) and it's due for completion early next year. Bought it with 80% LVR with one of the major banks (the one who wants to "break up" with the others...)

I demolished the building after I got the development permit. I also decided to start construction as I have enough cashflow to fund half of the development and quite confident I could get subdivision permit before construction is complete. (first mistake?)

I did get the subdivision permit and Council's statement of compliance (except it was about 3 months later than I expected). Now the building is almost at lock up. Just when I thought the hard bit was over (second mistake) this major bank who owns my land will not release the title to the land titles office for me to create 3 separate lots. Their reason is now that the construction has started, they cannot value the lots separately unless the construction is finished.

I was so shocked... I am not even asking for 1 cent from them. All I want them to do is to consent to the subdivision so I can get three separate titles and they can have 3 properties as security instead of one. It can literally be done in like a week. How does the construction have anything to do with releasing the titles? They got 300k worth of new improvements on the land for free and they wouldn't let me subdivide? I thought subdivision is adding value to their security?

What have I overlooked??

thanks for all your comments
mm

 

[westminster]

Did you get permission from them to demolish the house to construct the townhouses?

The system must be different where you are. We can do titles before building (but it takes ages) or we do it at the end but the houses have to be completed and the Council signed off for occupancy.

 

[Aaron_C]

Well, this is how it works. When you do a subdivision the bank has to consent to it (as you've discovered). To consent to it, the bank has to be satisfied the the security is adequate - which relates to both the valuation of the property AND the type of security. I don't think valuation would be an issue if your LVR is low. However, banks HATE half-built houses (particularly 3 of them) - these are the worst kind of security and are not acceptable unless the loan that you have is a construction loan. So looks like you are stuck. What you'll have to do is get a construction loan for the remaining amount to completion, or use other funds (i.e. cash) to finish it off and then get subdivision so the security provided is now adequate.

 

[Peter_Tersteeg]

You've either got to get the bank involved before you start building, or afterwards. Trying to get them in halfway through just doesn't work.

At this point in time, the property is probably worth less than the land value in the banks eyes. You first reduced the value of the property when you demolished the house, now you've got something half built which is actually a further liability. It'll certainly be worth more when it's completed, but for the moment the bank is worried because their worst case scenario is that they can't sell a half built property.

Your best option is probably to wait until you're at completion before you try get more cash from the bank. The good news is you've already got most of the ducks in a row from the council, so it shouldn't be too difficult to complete the subdivision once the bank is satisfied.

 

[Rolf Latham]

Hi all,

This is my first development (3 townhouses) and it's due for completion early next year. Bought it with 80% LVR with one of the major banks (the one who wants to "break up" with the others...)

I demolished the building after I got the development permit. I also decided to start construction as I have enough cashflow to fund half of the development and quite confident I could get subdivision permit before construction is complete. (first mistake?)

I did get the subdivision permit and Council's statement of compliance (except it was about 3 months later than I expected). Now the building is almost at lock up. Just when I thought the hard bit was over (second mistake) this major bank who owns my land will not release the title to the land titles office for me to create 3 separate lots. Their reason is now that the construction has started, they cannot value the lots separately unless the construction is finished.

I was so shocked... I am not even asking for 1 cent from them. All I want them to do is to consent to the subdivision so I can get three separate titles and they can have 3 properties as security instead of one. It can literally be done in like a week. How does the construction have anything to do with releasing the titles? They got 300k worth of new improvements on the land for free and they wouldn't let me subdivide? I thought subdivision is adding value to their security?

What have I overlooked??

thanks for all your comments
mm

Hi MM

I dont think you have overlooked anything per se

You havent been appropriately informed of the process, and almost all lenders doa bad job of the "fringe stuff"..........some lenders dont like it at all when you knock down their primary security, because at that time, if you fall over, often thats when they will have the lowest value/ risk cover.

Hopefully this wont bite into your equity position so you can still complete construction

ta
rolf

 

[Rockstar]

Hi all,

This is my first development (3 townhouses)

Kudos for having a go.

I also decided to start construction as I have enough cashflow to fund half of the development and quite confident I could get subdivision permit before construction is complete. (first mistake?)

How did you intend to fund the last half of the project. I hope you weren't HOPING the bank would just happily come to the party.

now that the construction has started, they cannot value the lots separately unless the construction is finished.

Can you get the money to complete?

What have I overlooked??

The loan contract with the bank. As the others have said, you can't change or alter the security without consent of the lender. You have demolished half of the security. I know you have then added more but you should have had all the cash to complete the project if you were planning to negotiate a title release with the bank. They can really become difficult to deal with as you have found out - and for a legitimate reason since you have breached the loan contract pretty seriously.

Good luck in sorting it out. Hope you can get the funds to complete so it doesn't turn into a nightmare.