Posted by Dynasty on February 09, 2002 at 16:17:07:
I can’t answer all of your questions but, I have done 4 “subject to” deals and I just take deed in a land trust with the sellers last name and the words family trust. Ex: The Smith Family Trust. If the loan is in Joe Smiths name then tranfered into the Smith trust, who do you think the bank will guess the owner is. By law the bank can’t call a loan due, if you place your home in a land trust for estate planning purposes. If they really got into it they would have to get a court order to find the real owner of the trust.
Posted by Windy City Ron on February 09, 2002 at 15:58:11:
Are “subject to” and a wraparound mortgage the same thing? I read Charlie France’s article on this site and don’t see the difference.
Also, Ms. France’s article seems to gloss over the “due-on-sale” clause issue. Since there is a deed transfer wouldn’t this trigger the due-on-sale clause. Or is the trick to be a bit of a Shyster and hide the transaction from the mortgage company?
Posted by Brent_IL on February 09, 2002 at 19:46:40:
Wraparound refers to a junior loan that encompasses the first loan.
Example:
FMV - $100K
First - $50K at 8% interest;
Second - $30K at 9%;
100% of FMV wraparound loan for $100,000 at 10%.
If you wanted to get 100% financing, and could afford 10% interest, you could;
Plan A -
Take over the payments on the 1st and the 2nd and give the seller a third for $20K. Or,
Plan B -
Give the seller a wrap for $100K at 10%. The seller earns 10% on the top 20K, plus 1% on the second (10 received minus 9 paid), plus 2% in the first (10 minus 8).
The advantage to the seller is that they are earning a higher return on the $20,000 they have at risk, and they have control of the loans.
Traditionally, wraps are used in times of high interest rates to achieve a lowered blended rate. They’re also used when the seller has a high expectation of alternative ROI.