What Is a Partial Release?
The term partial release refers to a mortgage provision allowing some of the pledged collateral to be released after there is partial satisfaction of the mortgage contract. When a partial release is put into effect, the lender agrees to release some of the collateral from the contract when the borrower pays off a certain amount on the mortgage. Borrowers must contact their lender to see if they qualify and begin the process for a partial release. Lenders generally complete the paperwork that outlines the segments of property released.
- A partial release is a mortgage provision that allows some of the collateral to be released from a mortgage after the borrower pays a certain amount of the loan.
- Lenders require proof of payment, a survey map, appraisal, and a letter outlining the reason for the partial release.
- Borrowers may need to pay fees to the lender and to the county recorder's office.
- A mortgagor may request a partial release when they wish to sell a portion of the land on their property.
Understanding Partial Releases
Lenders may have a release schedule that outlines how much of the mortgage must be paid off before a partial release is possible. Since it isn't automatically guaranteed or applied, borrowers must check with their lenders to apply for the provision. Keep in mind, not all lenders permit partial releases, so it's important for borrowers to check before they apply.
The partial release isn't an industry standard, so it's important to check with lenders to see if they accommodate this provision.
Qualifying for a partial release may require the borrower to retain proof of payment on the mortgage. There is usually a minimum period of time that a borrower must pay before lenders will consider an application for partial release—usually 12 months. Many lenders won't consider applications from borrowers who have recently defaulted on payments, even if the mortgage is brought up to date.
The application process may also require submitting a survey map to show which part of the property is to be released and what will remain under the title with the lender as the mortgage continues to be paid. This means getting an appraisal that outlines the current value of the property retained by the lender. The borrower may also need to include a reason for the request for partial release. For instance, the borrower may want to obtain a release for unimproved land that they don't intend to make use of and another party wishes to acquire for their development or other purposes.
There may be nonrefundable fees payable to the lender to apply for a partial release. Additional fees may be required by the county recorder’s office to make changes with a mortgage. The approval process for a partial release may take several weeks.
If the borrower has a deal to sell part of the property, this may be enough to convince the lender to all a partial release. It may still be necessary to offer some incentive to the lender, such as supplemental compensation to secure the partial release. Throughout the transaction, the lender will want to preserve their loan-to-value (LTV) ratio of the collateral. Part of the requirement for such an agreement could be to pay down the outstanding principal on the mortgage.
When drafting the sale of a portion of a property, the seller must also furnish documentation to allow for the partitioning of the land. That can include conducting a title search to show any and all liens on the property, as well as other records and statements that show the remaining mortgaged property is still occupied.