Doing a wrap on a vacant parcel with owner carry

6 Replies

I own a vacant parcel in a desirable part of town that we purchased as part of a package agreement with a seller (buy this one with the other and we'll give you a deal).  There were a few complications with boundaries and septic they didn't feel like dealing with.  That's all been resolved and we'd like to sell the vacant lot but have an owner carry with a one-year term.  Other property is a duplex on a lot we'll split down the road a bit.

I'd like to do a wrap mortgage for a buyer, but would need it paid off at the one year mark per our mortgage terms, though I suspect we could extend the timing on our mortgage with the sellers a few months if needed.  My thoughts were to amortize over 15 or 30 years with at least 10% down.  Curious how to structure this so it doesn't get us in trouble with Dodd-Frank.  

Don't think a lease-option or similar structure would work since this will likely be purchased to build a single family home, and assume the bank lending on the construction loan will need to see ownership of the lot.

Get permission from your lender to do the Wrap- Around Mortgage. 

If the property is going to be a homestead or otherwise the buyer's home, hire an residential Mortgage Loan Originator (RMLO) to keep you compliant with Dod-Frank etc.

you're wrap-around mortgage should explain to your buyer's everything about your underlying debt.

Find a private lender to replace the current lender...get more favorable terms than the 1 yr balloon. the key to almost every investment strategy is private money with favorable terms. Perhaps this is a great place to start cultivating your private lender pool.

--Mitch Stephen--

Some good insights, thank you Mitch.

Page, you'll need a mortgage brokerage not just a RMLO, one who is compliant. There are RMLOs out there attempting to deal independently and they will not be compliant as they must have a registered sponsor. The lot for a residence is covered under Dodd-Frank.

If you lender has a blanket mortgage, there should be a reasonable release fee, an amount paid down on the loan to release one parcel. They may release that parcel depending on the LTV at this time, otherwise you may need to pay down the loan.

If you have an existing equity funded note, seller financed, wrapping that loan is an extension of credit requiring the note holder's consent. You could sell subject to, but be careful about your private lender/seller being able to convey if your buyer is ready to close. An issue with private lenders (true private lenders) is that they must be alive, capable of releasing liens with short notice. Someone dies, the note goes to their estate, you may not be able to act quickly to satisfy a buyer. You may have an issue if they are in the ICU as well. So, see your attorney as to structuring your obligations. Good luck! :)    

@Page Huyette Could you clarify a few facts, please?

There is an existing loan on this parcel of land independent of other properties (not cross collaterized)?

Is the lender / beneficiary a commercial lender or bank? Of was that loan created by seller financing (perhaps I just missed this). If the latter, it might be easier to gain cooperation to modify terms slightly, if needed.

As for your WRAP, there are a few things to consider, such as the end buyer's need to get construction financing at some point. This would necessitate the construction lender (bank) insisting on being in 1st position and the other loans subordinating, whether wrapped or not.

Mr Gulley's thoughts?

Seller financed, and financing is not tied to any other properties.

Unless you can modify your underlying mortgage terms, pay off within a year, then you're likely better to simply sell it out right.  Not a lot of value in owner financing for less than a year, and then you're relying on your buyer to refi to take you and your seller/lender out.  If your buyer can't pay you off, when it's due, can you pay it off without selling for cash?