Expert: Dick Dennis - 5/22/2006

Question
My wife and I presently own a cottage in Michigan that friends of ours would like to buy-into. We have agreed on an equitable price but are unsure of what forms are required to transfer half the ownership to them. Also, as part of this transaction, we will be tearing down the original cottage and building a new one that we would jointly own. I have very good terms on the original mortgage. Can I keep the original mortgage and get a new mortgage to fund the cost of the new cottage? Are there any legal obligations to the mortgage company that I am tearing down the cottage and building new?

Answer
If you are definitely tearing down the house, Zvonko, I would recommend you put together a package that includes the plans for the new house, go to a new lender, or the existing lender and tell them what you are planning to do.

You should do this BEFORE you tear down the existing house. The existing lender might be concerned that the security is in danger. But if you get their cooperation, you might find they will do what you want .  .  . to get a new loan so you can build a new house. From all this, you will find out the proper paper work that is necessary to sell half of the property properly.

Suggestion: If your friends are giving you enough as part of their purchase, you may want to use those funds to pay off the existing loan (if it is enough). Then you can go to any lender and do as you wish with another lender.

I do wish you well.

Dick Dennis