Structuring a Wraparound mortgage

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Structuring a Wraparound mortgage

Kingsley Ogwuegbu
Rental Property Investor · Cleveland, OH · Member since 2018 · 25 posts · 11 votes

Hey All,

I am purchasing a friends property in Cleveland, OH with a wraparound mortgage (my first time doing this) and I was wondering if anyone can refer a lawyer/title company that can assist with this please.

Also please feel free to share ang tips and pitfalls to look out for.

Thank you!!!

1Reply
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Marco Bario
Specialist · Frederick, MD · Member since 2017 · 475 posts · 454 votes
4y

Congrats on the purchase @Kingsley Ogwuegbu! A few tips:

  1. Make sure your friend sends an authorization to the underlying mortgage servicer allowing them to share account information with you in perpetuity. You'll want to be able to obtain balances, confirm payments were received, obtain payoff statements, etc.
  2. Ask your friend to share the username and password for the servicer's website
  3. I recommend using a loan servicer to collect your payments and disperse payments each month to the underlying mortgage servicer. It makes life much easier for all parties. 
  4. Your friend may be able to claim interest paid on the underlying loan as a business expense. Be sure you and your friend are receiving annual forms 1098 associated with both loans and that you discuss with your respective tax advisors.
  5. You will purchase hazard insurance in your name, listing the underlying lienholder as 1st loss payee and your friend as 2nd loss payee.
  6. When structuring a wrap, it's best for the wrap term to be longer than the term for the underlying loan and of course the monthly P&I payment to be higher. 
  7. The promissory note will be a "wrap note" and the mortgage a "wrap mortgage." Both state that they are subject to the underlying lien and both disclose its existence. 
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  • Marc RiceBusiness Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    Most title companies in Cleveland should be able to handle that, its a fairly simple legal task.

    [email protected]614-363-2787
    Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews
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    0Reply
  • Marco Bario
    Specialist · Frederick, MD · Member since 2017 · 475 posts · 454 votes
    4y

    Congrats on the purchase @Kingsley Ogwuegbu! A few tips:

    1. Make sure your friend sends an authorization to the underlying mortgage servicer allowing them to share account information with you in perpetuity. You'll want to be able to obtain balances, confirm payments were received, obtain payoff statements, etc.
    2. Ask your friend to share the username and password for the servicer's website
    3. I recommend using a loan servicer to collect your payments and disperse payments each month to the underlying mortgage servicer. It makes life much easier for all parties. 
    4. Your friend may be able to claim interest paid on the underlying loan as a business expense. Be sure you and your friend are receiving annual forms 1098 associated with both loans and that you discuss with your respective tax advisors.
    5. You will purchase hazard insurance in your name, listing the underlying lienholder as 1st loss payee and your friend as 2nd loss payee.
    6. When structuring a wrap, it's best for the wrap term to be longer than the term for the underlying loan and of course the monthly P&I payment to be higher. 
    7. The promissory note will be a "wrap note" and the mortgage a "wrap mortgage." Both state that they are subject to the underlying lien and both disclose its existence. 
    2Reply
  • Nicholas MischPro Member
    Investor · Broadview Hts, OH · Member since 2016 · 310 posts · 280 votes
    4y

    I second @Marc Rice Should be a very easy and straight forward process. 

    0Reply
  • Kingsley Ogwuegbu
    OP
    Rental Property Investor · Cleveland, OH · Member since 2018 · 25 posts · 11 votes
    4y

    Thank you very much @Marc Rice

    0Reply
  • Kingsley Ogwuegbu
    OP
    Rental Property Investor · Cleveland, OH · Member since 2018 · 25 posts · 11 votes
    4y

    @Marco Bario Thank you so much! I definitely will take all your tips into consideration! This is very helpful!

    0Reply
  • Aaron White
    Realtor · Houston, TX · Member since 2018 · 20 posts · 7 votes
    2y
    Quote from @Marco Bario:

    Congrats on the purchase @Kingsley Ogwuegbu! A few tips:

    1. Make sure your friend sends an authorization to the underlying mortgage servicer allowing them to share account information with you in perpetuity. You'll want to be able to obtain balances, confirm payments were received, obtain payoff statements, etc.
    2. Ask your friend to share the username and password for the servicer's website
    3. I recommend using a loan servicer to collect your payments and disperse payments each month to the underlying mortgage servicer. It makes life much easier for all parties. 
    4. Your friend may be able to claim interest paid on the underlying loan as a business expense. Be sure you and your friend are receiving annual forms 1098 associated with both loans and that you discuss with your respective tax advisors.
    5. You will purchase hazard insurance in your name, listing the underlying lienholder as 1st loss payee and your friend as 2nd loss payee.
    6. When structuring a wrap, it's best for the wrap term to be longer than the term for the underlying loan and of course the monthly P&I payment to be higher. 
    7. The promissory note will be a "wrap note" and the mortgage a "wrap mortgage." Both state that they are subject to the underlying lien and both disclose its existence. 

     @Marco Bario what servicing company do you use?

    0Reply
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