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Creative Real Estate Financing

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Kingsley Ogwuegbu
  • Rental Property Investor
  • Cleveland, OH
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Structuring a Wraparound mortgage

Kingsley Ogwuegbu
  • Rental Property Investor
  • Cleveland, OH
Posted Jan 27 2022, 19:38

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!!!

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Marc Rice
  • Real Estate Agent
  • Columbus, OH
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Marc Rice
  • Real Estate Agent
  • Columbus, OH
Replied Jan 28 2022, 07:05

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

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Marco Bario
  • Specialist
  • Frederick, MD
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Marco Bario
  • Specialist
  • Frederick, MD
Replied Jan 28 2022, 08:09

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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Nicholas Misch
  • Investor
  • Cleveland, OH
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Nicholas Misch
  • Investor
  • Cleveland, OH
Replied Jan 28 2022, 09:12

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

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Kingsley Ogwuegbu
  • Rental Property Investor
  • Cleveland, OH
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Kingsley Ogwuegbu
  • Rental Property Investor
  • Cleveland, OH
Replied Jan 29 2022, 07:01

Thank you very much @Marc Rice

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Kingsley Ogwuegbu
  • Rental Property Investor
  • Cleveland, OH
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Kingsley Ogwuegbu
  • Rental Property Investor
  • Cleveland, OH
Replied Jan 29 2022, 07:03

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