Q: If you are gifted land that's not fully paid for can that land be used as collateral/down-payment on a new home?
A close friend of mine wants to gift us 1-2 acres for us to put a house on. He is still paying on the land (30 acres total). First, can the 1-2 acres of land be gifted if he is still paying for it? Second, if so can we use that gifted land as collateral or down-payment on the home we want to put on it?
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A: A conveyance to you is subject to the secured debt. If a lender is willing to loan money as a second priority mortgagee, there is no law preventing him from doing that. But the transfer may violate the due on sales clause of the security instrument, thus allowing foreclosure. I would not recommend you engage in such very risky financing. Your friend could lose his land also.
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