Often in a construction context, the Deed of Partial Reconveyance is required. The most common scenario is when an owner wants to subdivide their parcel and the parcel is encumbered by a Deed of Trust.
The second most common scenario is when a neighbor wants to buy some additional portion of the adjacent property, usually to comply with setback requirements of their remodel or to preserve their view.
In both circumstances, the Lender made a loan against the entire property. For ease of reference, assume Lender's Deed of Trust encumbers all of Property A, which totals 1 acre.
California is a Trust Deed state, which means there are 3 parties involved in the loan-- the lender is the Beneficiary, the borrower is the Trustor and the lender designates a Trustee (usually a title company). The beneficiary has the power to tell the Trustee to reconvey title to the property back to the Trustor (borrower) if the loan is paid off.
However, when Owner A wants to sell 1/2 an acre to Owner B, the lender has to approve it and agree to instruct the Trustee to issue the Partial Reconveyance of the original Trust Deed.
The Lender will want an appraisal because it wants to make sure that if Owner A is shrinking the land (security or collateral for the loan) that the Trust Deed encumbers, that the borrower (Trustor) still meets the Lender's underwriting guidelines for the loan.
The appraisal report will need to show the value before and after the proposed sale of the land to the neighbor. If Owner A has owned the acre for a while, she or he may have experienced an increase in value and accordingly, even with the loss of the square footage, the value of the 1/2 acre may still be enough to meet the loan-to-value ratio the Lender requires.
After the Lender reassures themselves (with appraisal reports) that they are still adequately secured, they will instruct the Trustee to execute the partial release. The Trustee is sometimes a title company and so they can usually prepare the Partial reconveyance in house.
In additional to the hurdles with the bank, the City or County will need to be involved for a lot line adjustment.
While the lender’s decision is not related to city or county approval, the city approval gives the appraiser a firm idea of what the boundaries are, square footage etc. on which to base his or her appraisal.
Additionally, a civil engineer or surveyor will need to be involved in order to confirm those findings and describe the newly changed property boundaries.
In sum, it is not a particularly easy process to navigate as it requires the coordination of so many parties. However, working with seasoned professionals will speed up this process.