I'm in the process of getting a 30 year fixed loan, then doing a wrap around mortgage to a buyer. The problem is that the lender is requesting insurance, and apparently, according to my attorney, after I do the wrap around mortgage, the borrower also needs to have their own insurance as well because my insurance won't cover them (or maybe not even me) because i no longer own the property. I gogled it, and i'm not seeing any providers of insurance that allow you to cover your new buyers as well as you to avoid buying double property insurance.
Please let me know if anyone has this experience
With the new Dodd Frank laws you should be using a RMLO to qualify your buyer (I am assuming the buyer is not an investor but retail buyer), a knowledgeable title company/attorney to prepare the paperwork and a 3rd party note servicing company at a minimum. If none of these parties can refer you to a suitable insurance carrier or broker then I would ask around your local REI groups.
Have you thought about the due on sale clause? You need to protect your buyer if the lender call the due on sale clause.
Probably not, since your lender wants to see policy issued to you as the owner(since you have a due on sale clause they assume you are the owner unless the loan gets paid off) with them as an additional insured. Your buyer will need insurance since they really are the owner. Is this a new purchase mortgage you're getting, or a refi?
This property is in Fort Worth, TX. I don't do more than 3 or 5 of these transactions annually, so I don't think the RMLO requirement applies in my situation.
If i could find an insurer that covers both me as seller, my lender and the buyer, it will solve my problem. I also think it's a great niche for insurers because there are a lot of wraps going around these days. Hopefully someone has done this.
I'm not seeing the problem. When you sell on a wrap, you're essentially the 2nd lien holder, right?
You purchase a policy and name the lender as mortgagee. Upon your wrap sale, your buyers purchase a policy and name you as mortgagee. Both policies stay in effect. The lender is covered, you're covered and the buyer is covered.
@Steve Babiak Can you please help me find and link those groovy articles by Aaron Norris about insurance for sub2 deals? Thanks!
Look Steve. I did it myself!
This thread has some articles by Tim Norris (not Aaron) on sub2 insurance.
A Texas attorney is a must, as there are some Texas Property Code responsibilities that may arise in a wrap note situation (title insurance/lender notification, etc). You should hire a TX RMLO to handle the finance side.
I agree that a TX attorney should be consulted here rather than taking opinions on this from non attorney investors who may not even be in your state.
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