Credit problems on wrap mortgage? - Posted by Erik Bergerud

Posted by Rus Sims on March 05, 2001 at 24:19:18:

Try looking under “Credit”. You should see agencies that do credit checks, as well as tenant screening.
Good Luck

Credit problems on wrap mortgage? - Posted by Erik Bergerud

Posted by Erik Bergerud on March 03, 2001 at 04:54:37:

I am structuring a wraparound owner financed deal like described in legrand’s course. My concern is as follows:
If the property goes into foreclosure because of my buyer defaulting on his mortgage… therefore I would be unable to pay my seller… would my credit be damaged? Or does owner financing never show up on a credit report at all? If there is a foreclosure with owner financing… does anyone’s credit get damaged?

Re: Credit problems on wrap mortgage? - Posted by wannabeNV

Posted by wannabeNV on March 04, 2001 at 04:08:07:

Erik:

Review the course again. Ron has sources for checking out tenents/buyers and advice on keeping your money in your pocket. You should have enough of a down payment to set aside for such contingencies so you can foreclose yourself if needbe. Hey! Did you get my email? Good Luck on the deal!

Re: Credit problems on wrap mortgage? - Posted by Jonathan Rexford

Posted by Jonathan Rexford on March 03, 2001 at 13:14:57:

You Said
"If the property goes into foreclosure because of my buyer defaulting on his mortgage… therefore I would be unable to pay my seller… would my credit be damaged?"

This statement really scares me. Just because if your buyer does not make payments does’t mean that you cannot. Always cover the seller. Get enough money up front to cover the payments or enough money to get them out of the house. As far as your credit, I cannot see that be a problem unless you are dragged into court. More important is about your future of doing more deals. Word of mouth travels fast. I have a deal right now that the seller wants me to escrow 6 payments. I have know problem with that I just said lets take it out of the down payment and after a year we will release the money. He has know problem with that. So guess what I am going to do? I am going to put up 5K as down payment and 3K will be in escrow. I have a buyer who has 8,500 for down payment. I will refinance him in 12 months. Nice back end and spread.

Jonathan
1st Metropolitan Mortgage

disturbing… - Posted by Russ Sims

Posted by Russ Sims on March 03, 2001 at 13:07:35:

I understand your concern, but it’s somewhat disturbing to me that you would enter into this transaction without some kind of contengency in place to make the mortgage payment even if your buyer doesn’t. If you have no way of eating a payment or two if your buyer defaults, you shouldn’t be doing the deal. I’ve purchase a number of properties this way, and yes, I’ve had to eat some payments from my dead-beat buyers ( I screen A LOT better now…). But I’ve been able to get rid of the buyers and get GOOD buyers in the properties. It would be ideal for you to have a cash reserve or credit line to deal with these contengencies, because if you default in your agreement with your seller, you’ll wind up in court and your good name will be tarnished. The effect on your credit report should be the least of your worries…

Re: Credit problems on wrap mortgage? - Posted by Keith

Posted by Keith on March 03, 2001 at 10:42:23:

I just strucutred a deal with wraparound financing. I am the buyer, so I will be making the mortgage payments. The seller will still havehis original mortgage in his name. With this particular deal, I am simply taking over his payments, so I send the payments directly to the mortgage company. Each month he receives his statement from the bank that will indicate I paid on time. If anything happens, and I don’t pay, he knows right away (before the property can go into foreclosure - or gets behind and starts affecting his credit). I would suggest that if the buyer is paying more than the orighanl mortgage, that the difference go directly to the seller and the orignal mortgage goes to the bank. That way there is no doubt that the bills are getting paid. The last thing you want is to buy a house with a wrap, pay the seller and find out 5 months later they never paid the mortgage company. Even still, if the closing was handled properly, the propery should be in your name. The wort thing that could happen then, is that you would have to get a mortgage on your own to pay of the original lender(which defeats the whole purpose of doing a wrap).

Re: Credit problems on wrap mortgage? - Posted by Mike(WI)

Posted by Mike(WI) on March 03, 2001 at 09:04:18:

Erik,
In general, a wrap mortgage by the seller will not be reported to the credit bureau, but if they foreclose on you and it goes to court there will be a foreclosure on your record, which is one of the worst things that can happen to your credit rating.

Mike

Re: Credit problems on wrap mortgage? - Posted by Monique

Posted by Monique on March 03, 2001 at 08:55:53:

Erik,

Typically, individuals who hold owner-financed mortgages don’t take the time to do credit bureau reporting. Not to say that they don’t – it just isn’t typical that they do.

If your owner-financed purchase was a non-recourse loan (instead of one with personal recourse if you were to default), it would seem even less likely that it would be reported. Just thinking out loud here … I’m not sure how you would keep a very eager seller from reporting it with the bureaus if they were so inclined, even for a non-recourse loan.

Hmmmm… maybe others have some comments here.

Monique

Re: disturbing… - Posted by Mike

Posted by Mike on March 03, 2001 at 18:21:39:

What is your screening process for prospective tenants? I mean the one you find to be successful.
Thanks
Mike

Re: Credit problems on wrap mortgage? - Posted by Vic

Posted by Vic on March 04, 2001 at 24:13:11:

Monique,

I like this suggestion a lot. I’ve never thought about a non-recourse loan on a land contract.

You can bet I’ll be looking into whether or not I can do this here in our version of the land contract.

Thanks for the input.

Vic

Re: disturbing… - Posted by Russ Sims

Posted by Russ Sims on March 03, 2001 at 22:37:52:

Hi Mike: I use a small,local screening firm. I’m on a first name basis with the owner now and she has developed a feel for what I am looking for in a tenant/buyer. She can also expertly decipher credit reports. Ever see a credit report? Most of them are confusing! Getting good help in this area is invaluable. I know a lot of investors look for the cheapest source for credit reports, but a competent full screening service will give you so much more information (like criminal records) than a credit report will reveal.Check out your yellow pages and then go to the service in person and discuss your needs. They’ll be thrilled to talk with you!
Russ

Re: disturbing… - Posted by Ray

Posted by Ray on March 04, 2001 at 20:29:45:

Russ,

Where do you look in the yellow pages for this, “screening firm”. And what kind of business is it listed as??? Certainly not Screening Firms??

Thanks,

Ray