When most consumers purchase a home, they obtain conventional financing for the purchase. This often takes the form of a 30-year, fixed rate loan. In order to secure the loan made to you, the bank files a mortgage with the register of deeds. This document tells the world that the bank has a first-place lien against the house and if any other creditors file a lien, that lien will be inferior to the first-place loan. Now, let’s say that the same homeowner would like to make improvements to their home, add a pool or build a garage and would like to borrow additional money to do so. The homeowner may also want to borrow funds for reasons unrelated to the home such as consolidation of credit card debt, assisting a child with college tuition or a business venture.
So, rather than to refinance the entire home loan and file a new mortgage, etc, to account for the increase in the loan, a bank will often file a second mortgage. This can also take the form of a home equity line of credit type mortgage (HELOC) which is also usually a second mortgage as well. The difference is typically the bank will automatically release a second mortgage upon payoff. With a HELOC, the bank will keep the mortgage filed and the note open to allow a consumer to re-advance funds as needed. Only upon request of the homeowner will the bank release the mortgage upon payoff. This saves the costs and expense of making a new loan every time a homeowner wants to borrow funds.
HELOC’s and second mortgages can be obtained with the bank that made the first purchase loan or with a different institution as selected by the homeowner. The bank handling the loan will usually order title insurance to insure that the mortgage is secured against all liens, besides the first place mortgage. If a consumer with a second place mortgage or HELOC later decides to sell the real estate, the title company simply pays off the second mortgage the same as it pays the first at closing. The only additional step is to request additional payoff information. Of course, there are many different types of second mortgages and HELOC’s. it is a good idea to discuss options with a finance professional.
Here at Tallgrass Title, we deal with second mortgages and HELOCs on a daily basis. Should you have any questions during your purchase, sale or refinance, feel free to contact our title professionals. We are here to help, its our job!
A common issue that comes up with the sale of agricultural real estate in Kansas is whether the real estate is currently leased to a farmer or rancher and when that tenancy ends. Simply put, if you purchase real estate that is currently leased to another person, you take the property subject to that lease. This could mean that even though you purchased the real estate and received a deed, you may not have possession of that real estate until many months in the future! If you know this fact in advance, it may be addressed in the contract to protect the interests of the buyers.
The information in this post is meant to educate the buyer of rural real estate so that there are no unexpected surprises following closing. In Kansas, absent a written agreement to the contrary, leases are governed by the Kansas Landlord Tenant Act. This is basically a series of statutes (laws) that dictate the arrangement between land owners and tenants. Again, written agreements may change this arrangement so long as they do not violate the Landlord Tenant Act.
Basically, all farm tenancies are year-to-year beginning and ending on March 1 of each year. If the owner of the real estate does not properly terminate the lease, it will automatically renew for another year. One section that causes continuous issues, is the termination of farm tenancy statute. If the owner of the real estate wishes to terminate a farm tenancy, written notice must be given to the tenant at least 30 days prior to March 1 and set the termination date for March 1. Now, there are typically 28 days in February, which sets the typical termination date at January 29. In a leap year, the termination date would be January 30. As there are 31 days in January, this is counterintuitive as the termination dates do not fall on the last day of the month. However, if there are already fall planted crops (typically wheat) on the real estate at the time of termination, the termination does not take place until the harvest of the crops or August 1, whichever is sooner.
Often, agricultural real estate is sold in February-April. A contract for sale could foreseeably close after the tenancy termination deadline has expired and the Buyer would be subject to the existing lease. An easy solution before entering into a contract during this time of year would be to request that the contract would be contingent upon adequate proof of termination of the tenancy. Lastly, if there is a written contract, they often run on the calendar year and not the March 1-March 1 statutory term. In order to avoid issues with written agreements, one needs to simply ask to review the contract, and any termination notice, prior to entering into an agreement to purchase.
Kansas agricultural leases can be a complicated subject. Should you have any questions regarding your rural real estate transaction, feel free to call and ask to discuss the issue.