Need Advice on wrap around mortgage on townhouse in VA

13 Replies

I have a town house that has been for sale for about a year.  No offers.  I have another property where renter wants to buy this town house.  He has been good payer.  Says he has done a wrap around mortgage in the past as he doesn't like paying the fees and hassle of mortgage co.  wants to pay more toward principal each quarter to pay off early and save on interest.

He said he would set up amortization for 10 Years / 7%. Keep the property in my name and he would just take possession. He would also be responsible for reimbursing me for taxes, insurance and HOA.

How do I put this together properly?  I have talked to a couple of attorneys who just said don't do wrap around mortgages!  

Any help on how to do this well would be appreciated!

Originally posted by @Chris Howard :

(1) Says he has done a wrap around mortgage in the past as he doesn't like paying the fees and hassle of mortgage co.  

(2) wants to pay more toward principal each quarter to pay off early and save on interest.

(3) He said he would set up amortization for 10 Years / 7%. Keep the property in my name and he would just take possession. He would also be responsible for reimbursing me for taxes, insurance and HOA.

(4) How do I put this together properly?  I have talked to a couple of attorneys who just said don't do wrap around mortgages!  Any help on how to do this well would be appreciated!

On (4) DONT

(3)  YOU set the terms, and btw, he can screw your credit too easily

(1)  WHY?  Bet he can't qualify!

@Chris Howard try to avoid wrap mortgages.. J Beard is right.. They usually can't qualify.  Several major problems

1.  You could have the 'due on sale' clause called in you mortgage and would have to pay the note off in 30 days..

2  Your buyer could rent the place.. Collect the rent, not pay the mortgage and walk away, then you are stuck. Then you have to rehab it to sell it.

3.  You are married to that buyer for 10 years.  Do you really want this property in your name and you don't control it?? 

This is a loose, loose, loose situation for you.  Why don't you lease option the property, or keep trying to sell outright.

Thanks guys...so far:

A.  Don't do Wrap Around mortgages.

B.  Consider setting it up on a Lease Option.

In this situation...if a lease with option to buy ...how would you recommend keeping track of payments and how the monthly payments are collected and applied toward the purchase?

Brian, I am not sure how FROR works with the lease /purchase?

Yea, @Brian Gibbons has the right idea.

First, this is not a Wrap Around Mortgage.  The buyer does not want to take title until the home is paid off.  So, you can not give him/her a mortgage if he doesn't take title.  So no point in even talking about them.

What you have here is a potential installment contract.  Contract For Deed or Land Contract is what you can look up for some more information.  The lease option with first right of refusal can work as well.  

Both the lease contract and the installment contract mean the current owner (OP) would retain title to the home. You would agree to have the Buyer pay $X total with 7% rate on his desired 10 year term. The buyer will carry the burden of taxes, insurance and HOA.

If the borrower defaults you may have a more involved resolution above simply eviction but in this case I would consider that. I am not cheerleader for CFD/LC/IC but in this case it would work.

Speak to a local attorney about the lease option contract and the CFD.  Not much merit above the other for each, they will function the same way.  

As far as the credit worthiness of the buyer.  You sill want to look into that but in my experience folks seeking a short term (10 years) would typically have enough money to meet the demands of payment.  Perhaps he/she is not bank-able but I would consider them for this type of deal.  If they were asking for a 30 year agreement, not so much.  

In regards to accounting for the payments, you can probably board the agreement with a company like FCI and they will handle the accounting and administration and compliance.  

Just to make one more point about the underlying loan.  You will still retain that loan.  You retain title as I stated.  You will be responsible to pay your own mortgage payment from the contractual payments the buyer agrees to.  So, the only way the Buyer screws up your credit is if you don't make your payment.  

You are in a good spot and have a nice deal on a property that you struggled to get rid of at your price.  Pounce on it.  

A  rather systematized way (as far as I understand it and without meaning to offer any legal or financial advice on the matter) to accomplish the intent of the lease with ROFR, the CFD, the LC, the IC, the wraparound mortgage and so on, by different means,  is with the EHTrust transfer system.  Basically you put the property in a title holding beneficiary directed Illinois type land trust in which the trustee holds both equitable and legal title.   You make your intended lessee a co-beneficiary in the trust. Then you instruct the trustee to lease the property to  this resident co-beneficiary on a triple-net basis with right of first refusal at the trust's termination.  In this way the resident co-beneficiary (lessee) can take the interest income and property tax write-off for the property provided he agrees to take on all the property's upkeep and maintenance.  As well you can negotiate for the resident co-beneficiary to finance  a contingency fund to be drawn on to pay the mortgage in the event he misses a lease payment.  

Hi Chris,

This Wilson from Cornerstone Investment Group, LLC

After you choose one of those myriad of advices above,  you can always turn around and sell the seller finance mortgage notes to get your CASH right away.  And this where we can help;  we buy Owner Finance Mortgage Notes; just check me out at BP and call me or visit my website and help is on the way for your CASH and on to the next DEAL.

Regards,

Wilsobn