How does this unwrap? - Posted by Joe

Posted by Brent_IL on April 18, 2002 at 11:33:42:

Sorry. I think I answered a question that you didn’t ask.

Yes, that’s the way it works.

If you purchase, not the mortgage note, but the property for $1,000 and pay off the wraparound second, the original seller is out of the picture because his contract is fulfilled. Get a release from the seller before he cashes the check.

How does this unwrap? - Posted by Joe

Posted by Joe on April 18, 2002 at 24:57:33:

I’ve got a situation I’ve never encountered. Any help would be appreciated greatly.

A man bought a house three years ago. The original seller has an underlying first note and trust deed for $71,000 from a bank. The seller then sold to the man by taking a downpayment and adding a second note and deed of trust for $17,000, with a balloon in 3 years. Of course with the deed of trust, a warranty deed was given to the man. The three years expires in a month, and the man must pay the balloon of approx $17,000. The man has since moved out of state and wants to sell the property.

  1. What happens if the man doesn’t pay the balloon note? My understanding is that the seller can foreclose on the second note and regain title. Correct?

  2. What happens if I buy this house from the man, by paying him $1000 cash, having him deed me the property, and paying-off the second mortgage of $17,000? Do I now own the property subject-to the underlying $71,000 loan? Can I legally just start making payments on the 71K note, and own the home? It seems like this is true, but it’s wierd. I’ve in essence boought the property subject-to, without the approval of the original seller.

By the way, there is no Due-On-Sale clause in the $17K second mortgage. Am I safe?

Re: How does this unwrap? - Posted by Brent_IL

Posted by Brent_IL on April 18, 2002 at 02:08:33:

1- Correct.

2- The wrap violated the DOS. The first mortgage holder didn’t catch the transfer via warranty deed, or didn’t care because payments favorable to them were being made. It will be the same set of facts if you purchase now and the original seller lets the first ride. It is legal to make the payments. It’s also legal for the bank to call the loan anytime they wish.

Re: How does this unwrap? - Posted by Joe

Posted by Joe on April 18, 2002 at 10:04:58:

Just to clarify, I know I’m violating the DOS clause on the first mtg. That really wasn’t the question. I’m more concerned about the original seller.

There is equity to be had, here, in the order of $30,000. If I pay-off the second, and get the deed, I wondered if there was any recourse for the original seller to get the property back.

I’m sure the original seller would love nothing more than to have the second buyer default on the balloon note, and get back the property via foreclosure or deed in lieu. Then I come in and “pop the balloon” by paying off the second and take the equity for myself at the last minute. I just want to be sure I can do this…is this the way it works?