How do you do a wrap around mortage and have one insurance policy for buyer, seller and seller's lender?

21 Replies

Does anyone know how to get one insurance policy that covers everybody at the get go? I can't seem to find this.


As the seller, I need to have the insurance for my original lender, but i want to cover the buyer, and myself in case of loss.

@Rav Ram

I have used Patriot Insurance for my Texas properties. They specialize in property insurance for owner financing. Not sure where your property is located but give them a call and see if they can help you.

If you sell the home on a wrap and the lender decide to call the due on sale clause do you have the funds to pay the lender or funds to give the buyer his down payment back?

Joe Gore

Originally posted by @Gautam Venkatesan :
@Rav Ram

I have used Patriot Insurance for my Texas properties. They specialize in property insurance for owner financing. Not sure where your property is located but give them a call and see if they can help you.

This property is in Fort Worth, Texas!!! Where is Patriot Insurance? I have searched and searched, and until I find someone who specializes in working with owner finance wrap arounds, i'm not a happy camper! Please let me know where they are!

@Brian Gibbons,

I agree wraps are done all the time in Texas but can you explain how you protect the buyer if the due on sale clause come in play..

Joe Gore

This post has been removed.

Originally posted by @Rav Ram :
Originally posted by @Gautam Venkatesan:
@Rav Ram
I have used Patriot Insurance for my Texas properties. They specialize in property insurance for owner financing. Not sure where your property is located but give them a call and see if they can help you.

This property is in Fort Worth, Texas!!! Where is Patriot Insurance? I have searched and searched, and until I find someone who specializes in working with owner finance wrap arounds, i'm not a happy camper! Please let me know where they are!

They are in Houston but will insure anywhere in Texas.

Let me know if you need a recommendation on title company and attorney to use in Texas for wraps!

You have 2 options in my experience. Continue to use the same insurance as the former owner but add the buyer as additional insured. Or my preferenece, cancel the existing policy and put a new policy in place with the sellers as additional insured along with the existing mortgage. I have even done that when the insurance policy was escrowed in the mortgage.

Joe, the buyer and seller both need to understand the risks in that although unluckly the mortgage could be called in. The buyer might agree to buy it out early if that took place or the seller could agree to pay off the mortgage and agree to secondary financing conditions with the buyer. Or both parties might say we think it is really unlikely but if it does happen we'll try like heck to come up with a way to refinance the property but we might also lose it in that unlikely case.

Openness and honesty in communication are key in good business practices for these types of transactions.

@Kyle Hipp is right, it's all about proper disclosures, and making sure every party understands all the associated risks before signing.

@Joe Gore we've done over 10,000 wraps in my office over the past 25 years and only had the due on sale clause called 3 times. All of which were able to be resolved through deeding the property back to the seller then into a trust. Due to the Garn-St. Germain act, a property deeded into a trust doesn't violate DOS (although there are some caveats to that)

@Rav Ram the insurance is pretty easy, just make sure your original seller is listed as either the "insured" or "co-insured"/"also-insured" party. You'll need to have the original mortgagee (the bank) listed as the mortgagee, but put your company's name as the "secondary mortgagee" clause. If you need help please let me know, I'm here in DFW and I purchase/sell 5-15 of these a month for my own portfolio and I also process an additional 30+ each month for other investors around town.

@Jerry Puckett thanks for tagging me, I would've missed this thread!

@Brian Gibbons if you have suggestions for this insurance question, please post them. Not phone numbers or e-mails, though. We want to avoid complaints about some agent getting bombarded with calls or e-mails.

@Grant Kemp,

Can you show everyone where it say in the lenders terms and policy that putting it in a trust doesn't violate DOS.

Joe Gore

Adding an additional insured or co-insured (you agent should give guidance to the best arrangement) is not a violation of the trust agreement, it is a red flag to investigate if there has been any violation.

In an estate planning situation, in some cases, you can have an additional insured who might be the administrator of your Will to settle any insured loss without having to reinsure a property in the event of any loss during their duties. The same may apply to any person acting as a trustee.

Most attorneys won't mind being named as an additional insured as they may then administer loss proceeds for the benefit of the buyer, this of course going along with a properly devised installment sale contract (which is about as rare as hen's teeth, LOL).

Another way to address insurance issues in an installment contract is an assignment of loss proceeds from the seller to the buyer. This assignment may only be accomplished with the insurance carrier and is not really an issue for any mortgagee or other lien holders. Assignments of the primary insured are provide for the filing of claims and the disbursement of loss proceeds to the buyer or any party assigned. They may also need to show the insurance company the insurable interest held (the sale) in making a claim.

See a good RE attorney for a good contract and options. :)

Originally posted by @Joe Gore:
@Grant Kemp,
Can you show everyone where it say in the lenders terms and policy that putting it in a trust doesn't violate DOS.

Joe Gore

Joe, so as not to confuse folks, the St. Germaine Act allowing the due on sale clause to be used specifically excludes assignments to any Trust and transfers accomplished for estate planning purposes. :)

Thanks Bill. So that settle the wrap around just throw everything in a trust and you are home free.

Joe Gore

Well, you can, but not exactly what I was` saying, an LLC could be used in estate planning, assigning an interest or coverage could be an estate matter, the property doesn't have to be transferred into a trust or entity necessarily, but the basis for the activity can be for estate planning purposes. :)

Thanks for making that clear.

Joe Gore

@bill gulley is right, that's the caveat I was referring to earlier. The transfer must be for estate planning in order for Garn-St. Germain to be effective, which a wrap typically isn't. But since that act exists it just serves as another road block between the wrap and due on sale clause.

also, any insurance company should be able to handle this, just make sure you've given them instructions on what's needed and that you follow up to make sure it was done right.

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