Purely a hypothetical question. If I secured a substantial loan against my house and then failed to keep up with the repayments the bank would repossess my home. How far can I legally go in selling parts of the building and contents and anything of use on the land? I assume there would be no issue with me selling things like TVs and computers in the house but what about things that might devalue the property such as selling the garage/shed/conservatory or even selling the material the house is made of? Say I had substantial land that included a wooded area, could I sell the logging rights?
Am I legally obliged to keep the property in its original state (or reasonably close to it) for the duration of the loan or can I take the actions listed above and leave the bank with an empty patch of land to repossess? (giving the proceeds of all the sales to someone else so the bank can’t get hold of it)
Not a lawyer, but I believe the distinction between real property and personal property would be what controls this. You could sell any personal property from the house, but nothing that is considered part of the real property.
The specific extent of what you could sell (such as the logging rights) might depend on the exact language of the loan document. A property loan creates a lien on the property, and I would expect a properly written loan document would specify what property rights are covered in that lien.
I don’t think the bank can force you to maintain the property 100%, but there is probably some minimum level of maintenance required.
Again, not a lawyer, in fact this answer belongs entirely in IMHO. But it’s late and I can’t sleep and no-one else has replied, so here’s a start.
Roddy
Some folks own their land outright before building a house. I have a loan on the house, but own my land. So if I default on the loan, would the bank have to pay me fair market for my land? Or would they own a house they couldn’t occupy without trespassing?
There may very well be a provision in the loan document that creates an easement to the house across your property should the note holder foreclose. There may be a provision that the bank could seize the underlying property to settle the loan should a short-sale occur, especially if the underlying property is used as collateral against the loan or it’s otherwise agreed upon. Or a judge might have to sort it all out
You may well find that, when you took out a loan to finance the construction of the house, the mortgage document you signed gave the bank a charge over the house+land to secure the loan. In which case, if you default, house and land are both at risk.
Think about it. The point of the mortgage is to give the bank an asset it can sell to recover its loan. If ownership of the house has been separated from ownership of the land on which it stands, and if you offer them a mortgage over the house only, that’s not a terribly attractive security. Why would any bank lend on that security?
(The general common law position is that, when you build on your land, you are not creating a new asset; you are enhancing the value of the asset you already have, just as you might be if you planted trees on the land, or laid it out as a car park in an area where there was a high demand for parking. Hence the house is not something you own separately from the land. Previously you owned land with no house on it; now you own land with a house on it. If you’ve granted a mortgage, it’s very likely that the asset you have mortgaged in the land, which is valuable security largely because it has been developed by constructing a house on it.
But many jurisdictions have statutory procedures by which ownership of a building can be separated from the underlying land. The purpose is to facilitate, e.g., the construction and sale of apartments. It’s possible that you did separate land and building in this way. You would know because, among other things, you would have two separate titles, only one of which would have a mortgage registered on it. But I have to say this would be unusual.
And, if you have done that, the process of separating out the two titles will probably have invlolved your subjecting the title to the land to the rights of access, etc, of the owner of the house.)