From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1523 topics, 14441 posts — Last Post 04/24/14, 11:47AM

BiggerPockets Exclusive PRO Area

117 topics, 841 posts — Last Post 04/23/14, 08:28AM

New Member Introductions

10991 topics, 86627 posts — Last Post 04/24/14, 11:54AM

Real Estate Success Stories

399 topics, 6215 posts — Last Post 04/24/14, 08:56AM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5997 topics, 47260 posts — Last Post 04/24/14, 11:47AM

Renters

651 topics, 5869 posts — Last Post 04/24/14, 11:50AM

Get Foreclosure Help - Help Stop Foreclosure Forum

317 topics, 2561 posts — Last Post 04/23/14, 08:28PM

Home Owner Association (HOA) Issues & Problems Forum

238 topics, 1611 posts — Last Post 04/23/14, 04:02AM

Do it Yourself

659 topics, 6323 posts — Last Post 04/24/14, 09:58AM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3714 topics, 29782 posts — Last Post 04/24/14, 11:24AM

Real Estate Guru, Book & Course Reviews and Discussions

1139 topics, 11609 posts — Last Post 04/24/14, 10:32AM

Ask About A Real Estate Company

743 topics, 7344 posts — Last Post 04/22/14, 11:25PM

Real Estate Investing

Real Estate Strategies

Wholesaling

5640 topics, 43978 posts — Last Post 04/24/14, 11:25AM

Rehabbing and House Flipping

3354 topics, 31109 posts — Last Post 04/24/14, 07:10AM

Real Estate Development & New Home Construction

554 topics, 4695 posts — Last Post 04/24/14, 06:22AM

Innovative Strategies

705 topics, 6044 posts — Last Post 04/22/14, 04:06PM

Tax Liens, Notes, Paper, & Cash Flows Discussion

868 topics, 6696 posts — Last Post 04/24/14, 11:40AM

Rent to Own a.k.a. Lease Purchase, Lease Options

700 topics, 4961 posts — Last Post 04/24/14, 11:26AM

1031 Exchanges

143 topics, 1063 posts — Last Post 04/24/14, 11:10AM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1692 topics, 11317 posts — Last Post 04/22/14, 09:26PM

HUD, VA, and Tax Sales

416 topics, 3103 posts — Last Post 04/23/14, 02:29PM

REOs

1217 topics, 10604 posts — Last Post 04/24/14, 07:13AM

Short Sales

1539 topics, 13154 posts — Last Post 04/23/14, 08:25PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7254 topics, 71226 posts — Last Post 04/24/14, 10:51AM

Mobile Homes & Mobile Home Park Investing

639 topics, 5146 posts — Last Post 04/24/14, 05:13AM

Investor Basics

Starting Out

7735 topics, 60700 posts — Last Post 04/24/14, 11:31AM

Investor Psychology

432 topics, 6111 posts — Last Post 04/24/14, 08:55AM

General Real Estate Investing

4730 topics, 37330 posts — Last Post 04/24/14, 10:47AM

Real Estate Investor Marketing

1740 topics, 14163 posts — Last Post 04/24/14, 08:42AM

Commercial Real Estate

Commercial Real Estate Investing Forum

1413 topics, 9015 posts — Last Post 04/24/14, 10:58AM

Multi-Family and Apartment Investing

1123 topics, 9399 posts — Last Post 04/24/14, 10:57AM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

645 topics, 4913 posts — Last Post 04/24/14, 05:42AM

Business Basics

Goals, Business Plans & Entities

835 topics, 7593 posts — Last Post 04/24/14, 10:32AM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2803 topics, 20138 posts — Last Post 04/24/14, 08:22AM

Property Insurance

312 topics, 2059 posts — Last Post 04/24/14, 10:22AM

Personal Finance Discussion

330 topics, 2754 posts — Last Post 04/22/14, 12:06PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2853 topics, 19853 posts — Last Post 04/24/14, 11:40AM

Creative Real Estate Financing

1221 topics, 8863 posts — Last Post 04/24/14, 11:42AM

Crowdfunding Real Estate

35 topics, 463 posts — Last Post 04/19/14, 06:24PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1218 topics, 8043 posts — Last Post 04/24/14, 11:46AM

Bankers, Lenders, and Mortgage Brokers

442 topics, 1931 posts — Last Post 04/23/14, 09:04PM

Contractors

269 topics, 1690 posts — Last Post 04/22/14, 07:33AM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

2018 topics, 11761 posts — Last Post 04/24/14, 10:05AM

Americans & International Real Estate

162 topics, 572 posts — Last Post 04/24/14, 03:31AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

66 topics, 440 posts — Last Post 04/24/14, 05:54AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

15090 topics, 54147 posts — Last Post 04/24/14, 11:08AM

Real Estate Events and Happenings

168 topics, 2609 posts — Last Post 04/24/14, 11:03AM

Off-Topic

Off Topic

Off-Topic

2907 topics, 32447 posts — Last Post 04/24/14, 07:23AM

Housing News & Real Estate Market

921 topics, 8393 posts — Last Post 04/24/14, 11:45AM

BiggerPockets Real Estate Investing Summit

97 topics, 1752 posts — Last Post 04/23/14, 04:51AM

BiggerPockets Resources

Forums » Creative Real Estate Financing » Wrap around mortgage / Seller Financing

Wrap around mortgage / Seller Financing

10 posts by 5 users

Signup

Residential Real Estate Agent · Yardley, Pennsylvania


Well, I was all proud of myself that I had gotten a seller to accept seller financing on a property I felt would be a good long term investment..... now I come to find out he has a mortgage on the property, and wants to just accept my payments to him and use them to pay the mortgage. Doesn't his mortgage have a due on sale clause? What happens if we transfer title to me, I own the property, he still has his old mortgage, and the bank finds out? What are my risks here? I am not sure this is turning out the way I wanted.



Real Estate Investor · New York


I have been on the buying end of one wrap. The banks will most likely not enforce the dos clause but if interest rates go up in the future they might decide to start enforcing it so they get get higher rates. You can send the lender a letter stating your intentions if you wish. I pay the payment directly to the mortgage company this way I know that the payment is being made. You can use a note servicing company as well if you want. My lawyer preferred that I did not do a wrap but I did it anyway and it turned out ok. My big concern with this type of creative financing is that if down the road they call the call you have to have the cash to pay it off or you have to walk and lose whatever you have in it. I only buy houses now with owner financing for this reason.



Residential Real Estate Agent · Yardley, Pennsylvania


Those were my thoughts as well.. because the mortgage is a lein, and even if the transfer title to me - if he stops paying it, or they call it, they can still foreclose on it and I am screwed.. I think I'll skip this one and look for a property that a seller owns outright.



Real Estate Investor · Springfield, Missouri


Oooooo! The due-on-sale clause........(lol)

1. Give notice
2. Use a Special Warranty Deed subjet to the underlying financing.
3. Use a mortgage servicer
4. Read the Sub-2 threads here on BP.
You might find them from my profile, otherwise maybe Steve will save the day with links (lol)
This issue has been well covered.

In all the sub-2s I have done, not one has ever been called arising out of the sale, not one. That includes Wells Fargo and BoA, they have enough on their plate right now anyway. Good luck


Financexaminer@real estate investor dot com


Commercial Real Estate Broker · Canton, Georgia


Kim WRAPS in most markets are very common right now. It's one of the few ways deals are getting done.

A regular seller that has held onto the property for awhile might have some equity built up but not totally paid off.

In this case the seller wants and needs to sell.All cash buyers because of leverage want a VERY low price.This makes the deal unworkable for the seller.They will have to bring money to closing and pay closing costs and if listed real estate commissions.

This is the same reason buyers wanting the seller to hold a 15 to 20 percent second doesn't work many times. In this case the seller after holding a second will eat up most of their equity and and still have to bring money to closing.With the buyer getting 80 to 85 percent financing they will have no skin int he deal if it goes south.

So the WRAP with enough down allows the seller to cash out some equity with 15 to 20% down and pay closing costs and commissions and still come out ahead.Later if the buyer defaults the seller will most likely be in a better sales market than they are today.

You definitely do not want to pay the seller directly on these deals.You pay a third party note servicer.The note servicer makes sure payments are made on time which protects you the buyer and also protects the seller doing the wraps credit.Generally you set reserves with the note company of a few months.This way if the buyer pays late the servicer has a cushion to pay the lender on time.

You want to know what type of underlying mortgage there is.Is it fixed or adjustable and what is the interest rate?? As long as the senior mortgage doesn't adjust before your balloon is do you should be okay.

People with properties totally paid off will many times just reduce to land an all cash buyer unless they are trying to avoid taxes,etc.


Small_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Residential Real Estate Agent · Yardley, Pennsylvania


Joel - do you have an example of a servicer that will do this? Do I have any risk involved in this in that case, other than if the bank finds out and calls the note to be due?



Real Estate Investor · Charlotte, North Carolina


I use cashflow services to service mine....they handle everything ....make sure to check loan docs, and alsO see if the payment is piti or just pi...


Bryan A., A Helping Hand Property Solutions, LLC
E-Mail: [email protected]
Telephone: 704-215-4687


Commercial Real Estate Broker · Canton, Georgia


The loan can be called due in almost all mortgages these days.

The loans from 20 years ago or more generally didn't have this provision in there but you wouldn't want to assume those higher rates anyways.

I have heard of loans being called once per thousands or more so it is very rare but is always a possibility.There is risk in every investment you make.You can never eliminate risk just reduce it and try to control the type of risk that is acceptable for you to take with investing.


Small_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Residential Real Estate Agent · Yardley, Pennsylvania


Here is the info Ive got on their current mortgage pulled from public records:

Mort Rec Date 12/31/1998 LenderName Union Federal Sav Bk Of Indianapolis
Mort Amt $73,862 Due Date 1/1/2029
Remarks: FHA



Commercial Real Estate Broker · Canton, Georgia


Forgot to mention I would also make them sign an affidavit warranting they are not behind on any escrow,or mortgage payments,nor have they received any default notices from their lender and that taxes are up to date.

You have to check for tax liens that supersede the senior mortgage and make sure all previous years of ownership do not have back taxes that were sold off.


Small_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]




Sign up