After a loan closing, borrowers will sometimes want to make a change to the structure or “footprint” of a property. This can occur by an addition to a property, a change in the living units of the property, or removal of a structure from the property. When a borrower does this, it may or may not be a problem with the servicer of the mortgage loan. This is due to a clause within the Deed of Trust which is signed at loan closing that states that the borrower will not make changes to the property which will result in decreasing the value of the underlying collateral or that we will result in waste (destruction) of the property. The Deed of Trust also forbids a borrower from making changes to a property that will result in the property no longer being viable as a single-family residence, or that will increase or decrease the number of living units on the property.
An example of a property changes that will usually be allowed by a lender include adding square footage to a property such as a room addition. As long as the addition is carried out in a workman-like manner and the proper permits are filed, most lenders will not have a problem with this. Other examples of generally acceptable additions are adding a garage, workshop, or other detached structure.
Other changes to a property that may or may not be acceptable might include enclosing a garage that existed at the time the loan was closed. The lender will want to know about this and want to know if the loss of the garage will be offset by the additional square footage of the property. They will also want to make sure that the change is legal with local requirements by requesting copies of any required permits.
Another change that may or not be acceptable would be a change in the number of living units for the property. If the property owner is wanting to change the property from a 1 unit property to a 2 unit (duplex) property, this would not be acceptable without the consent of the lender. The reverse (going from 2 units to 1 unit) would also require lender approval.
Finally, there are certain changes to a property that would never be acceptable and would result in acceleration of the debt (demand for immediate payment of the outstanding balance). Changes such as destruction of the domicile and a rebuild; changing the nature of the property from residential to commercial use (commercial conversion); use of the property for illegal purposes; or failure to maintain the property (waste).
In all cases, whenever a borrower is considering making any changes to a property, they should contact the servicer of their mortgage loan to discuss the changes and whether those changes are allowed. Every situation is different and guidance is recommended. For more information regarding this topic, contact your Googain Loan Officer.