His note covers all 60 acres when I want to sell lots one at a time

Ask me about scope creep and I'll tell you the release schedule needs legal descriptions for lots that don't exist yet. You can't release lot 1 from a lien if nobody can say on paper what lot 1 is. So either your survey happens before closing, which the seller has to permit, or the note references a preliminary layout attached as an exhibit and lets the descriptions be conformed to the recorded plat. That second version is the one I've seen work, and it's the sort of thing that gets forgotten until the title company asks for it.

I've been working out what my first deal costs for months, so let me try yours. $48,000 down, $14,200 survey, closing costs and legal call it $6,000, perc tests if you need them at maybe $900 each so $5,400. That's roughly $73,600 of cash before you've sold anything, and your monthly payment on $192,000 at 7 percent is somewhere around $1,120 if it's interest only and a lot more if it amortizes. Which is it? That one detail changes your carry by thousands a year and you didn't say.

Taking your three questions in order.

A partial release provision is the mechanism. It sets out, in advance, what you pay the lender to have a specific lot released from the lien so you can convey clear title to a buyer. Without it you're asking permission every time.

Release pricing. Pro rata by acre or by lot is the floor from the lender's point of view, and lenders routinely ask for a premium above it so the remaining collateral stays worth more than the remaining balance. A release price of 110 to 130 percent of pro rata is a common range in negotiated seller paper. On your numbers, pro rata is $32,000 per lot and 120 percent is $38,400. Six lots at $38,400 is $230,400 against a $192,000 balance, so the note would pay off after the fifth release and lot 6 comes free. Model that, because it changes which lots carry the debt.

Whether release payments also satisfy monthly payments is purely a drafting question and it goes both ways in practice. Sellers who want income, like yours, often insist the monthly payment continues unchanged and releases only reduce principal, which shortens the term. Sellers who want out prefer releases to be applied and recast. Decide which you want and put it in writing.

Subordination is a different animal. That would leave his lien on the lot and move it behind someone else's, which does not solve a cash lot sale, since your buyer wants no lien at all. Release is what you want here.

Recording practice and the form of the security instrument vary by state, so have your attorney confirm how a partial release gets recorded where the land sits.

Figure out what he actually wants before you propose a structure. He's held it forty years and he wants monthly checks. That says he cares about the payment stream more than the payoff date, which is good news for you, because you can offer him a longer term and a lower release premium in exchange for the payments continuing. People running a small team learn this the hard way: the concession that costs you least is often the one the other side wants most, and you can't guess which one it is.

@cobalt is right about asking, but be careful with the long term idea. Every year you add to that note is a year he might die, and then you're dealing with an estate or three siblings who have never met you and one of whom thinks the land was worth double. Ask now what happens to the note on his death and whether there's a successor or a servicer named. Five years in business taught me that the counterparty you signed with is not always the counterparty you finish with.

Would he consider substitution of collateral instead? Six months of reading and that's the one tool I keep seeing in seller note discussions. Give him a lien on something else you own and let the 60 acres go free, so you never need a release at all.

@pike that only works if vellum owns something else with equity in it, and he hasn't said he does. Vellum, do you?

The trap in this is release price outrunning your sales pace. Say the county takes nine months on the plat and then lots move at two a year. That's year one with no releases and full payments, year two with $76,800 of releases if you're at $38,400, and a balloon at month sixty with maybe one lot left unsold. Run the worst case where you've sold three lots when the balloon hits. You'd owe roughly $77,000 and you'd have three unsold lots and no refinance history on land. That's the scenario that ends deals like this, and it's the one nobody models because it feels pessimistic.

Can someone say what a partial release is in the plainest possible words? I think it's: the seller's paperwork says he can take back all 60 acres if vellum stops paying, and a partial release is the seller signing a document that says one specific 10 acre piece is no longer part of that. Is that it?

@ember that's how I understand it too and I'd have been afraid to ask.

My question is the one that sounds dumb. Why not just resell the whole 60 to one buyer? $240,000 in, and if 10 acre pieces go for $62,000 then the bulk value of 60 acres to someone else has to be somewhere above $240,000 already or the seller mispriced it. Is the whole gain here really coming from the survey and the six deeds?

@compass the gain comes from the buyer pool. There are a hundred people in that county who can write $62,000 for a 10 acre piece and maybe two who can write $240,000 for sixty acres. That's the spread.

Vellum, one thing on selling six lots yourself. Whether you can market and sell your own lots without a license, and whether you can pay someone else a referral fee, is set by state licensing law and it differs by state. Worth a call to your state commission before you start putting up signs.

Reading this thread is useful for me in the opposite way. Nine months of plat review, release negotiations, a balloon, six separate buyers. I've been trying to work out which strategy fits and I think I just learned this one doesn't fit me. No criticism of the deal, vellum, it looks like it might work. It's just a lot of hands on a wheel for something people call passive.

Nobody has asked whether the seller owns it free and clear. If he still has a mortgage on the 60 acres, his note to you is a wrap, and his lender's lien is senior to everything you're describing. Then a partial release requires his lender's cooperation, which is a different conversation entirely, and there may be a due on sale provision in his loan that gets triggered by conveying to you at all.

Pull the title commitment before tomorrow's phone call if you can. Forty years of ownership doesn't mean forty years without borrowing. I read the paperwork on a land deal last year where the seller had a home equity line secured against a parcel he swore was clear, and he'd genuinely forgotten.

Downstream item from the management side. If those six lots share any access, a drive, a culvert, a ditch, somebody has to maintain it after you've sold all six and left. If you don't set that up in recorded easements or a small road agreement, your buyers will come back to you, and the last two lots get harder to sell once the first four owners are arguing about gravel. Cheap to set up at the plat stage, expensive to fix later.

Saving this whole thread. I didn't know a lien could cover land you hadn't split yet, which now sounds obvious.

The balloon is the whole deal and everyone's talking about release percentages. Five years, six lots, in a rural county, and you need the plat approved before lot 1 can close. I do fast deals on thin margins and the thing that hurts is always the date, never the rate.

I'd trade him a higher rate for seven years or an extension option you can buy with a payment. 7 percent on $192,000 is $13,440 a year. Going to 8 percent costs you $1,920 a year, which is nothing next to being forced to dump three lots at $50,000 in month fifty-eight. Ask for the extension. Sellers who want monthly checks often say yes to more years without much fight.

Who actually closes these lot sales, a title company or an attorney? I'm poking at the service side of all this and six small closings sounds like a real amount of work for somebody. Vellum, is that cost in your $6,000 number or is that per closing?