Posted by Bud Branstetter on February 23, 1999 at 13:13:27:
1.can the buyer of the wrap take the tax write off?
The wrap is a debt instrument not title to the property. Only the owner on title(or possession) would be entitled to the deduction.
2.how does the seller protect himself from a buyer who doesn’t pay i.e.eviction or foreclosure???
As with any seller carry back financing due diligence is required. This including making sure the taxes are paid, the insurance is in force and the underlying payments are made. You can do these things yourself or you can hire it done.
3.how is the insurance handled so as not to trigger the due on sale clause
The wrap is not the preferred way to handle the due on sale clause because the wrap is typically recorded. By adding the buyer(payor on the wrap note) as an additional insured you can alleviate some of the problems.
- how does the buyer protect himself from the seller
If this were a recorded wrap the deed would be recorded showing the change of ownership. A Deed of Trust or Mortgage would then be recorded showing the indebtedness. The insurance policy should be owned by the buyer but the buyer could be shown as a loss payee.
Wraps on assumable or private loans can be beneficial. In the cases were the title is not as secure as in a contract for deed the contract can still be wrapped by a contract. The problem becomes assurance that the title holder can and will deliver title. The Land Trust solves many of the problems and should be utilized even if the loan is assumable. Using it to deal with the due on sale is not fullproof nor should it be the primary reason.