Wrap mortgage two part question

2 Replies

I just finished listening to podcast 70. I have two questions.

1) if the the original owner's lien has 20 years left on it, and the new buyer agrees to a 15 year note through me, am I going end up on the losing end from year 15 to 20 in which I'm still paying off the original lien, but I'm no longer receiving a monthly payment check from he person to whom I sold the property

2) what happens to the original owner and what happens to the person to whom I sold the property if I stop paying off the original lien? It seems to me that the original owners credit will be ruined and the bank who holds that loan will want to foreclose in the property that I no longer own. If this is true, then how do I as the middle man assure the original seller and the new buyer that they don't need to be concerned about this risk?

There was a followup thread you may want to read:  Making Money on Deals that Most Investors Throw In the Trash

1)  This was never answered.  Its even worse than what you think.  The new buyer has paid off the loan.  They expect to now have a free and clear title, which you must provide to them.  So, continuing to pay the old loan is NOT an option.  At this point you have to pay this off.  I see a couple of alternatives.  Either pay extra each month so the loan terms are matched or be prepared to come out of pocket with a wad of cash to pay off the note.

Further, this could happen at any time.  So, you really want, IMHO, to always have the outstanding balance on the old loan lower than the outstanding balance on the new one.  Otherwise you could be out of pocket at any time if the new buyer decides to refinance and cash you out.

2) You would be best to use a payment service. The new buyer's payment goes to them, they pay the underlying loan and send you the difference.

If you do stop paying and the lender DOES foreclose they WILL take the house away from the new buyer, even though they have done nothing wrong.  You will end up being sued or tried in the court of public opinion (i.e., on the front page of the paper as one of those slimeball investors who ripped off innocent people) or both.

Jon,

Thanks so much for the quick answer. I'm new to the site and have lots to learn.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.