Re: Need help selling a Texas home - Posted by dutch
Posted by dutch on May 03, 2006 at 15:25:31:
No, no, no. Listen up grasshopper.
There would only be 130k worth of liens.
The 130k mortgage wraps the 100k mortgage. Part of the payment goes to pay the 100k, the other goes to the holder of the 130k note (you!). The original loan 100k is in first, the wrap is in 2nd, but since you hold it, who cares? You are the one making the payment to the 1st.
The real beauty of a wrap is the “interest on interest”. Say the 100K is at 6% and the 130K is at 10%. Both are 30 year notes.
Payment on 100K note is 599.55/mth
Payment on 130k note is 1140.84/mth
THAT IS $541.29/mth CASH FLOW!
You send the $599.55 to the original lender, and pocket the rest.
If the buyer defaults, and you would know first, since you are collecting the payments, you foreclose. The 100K note sits there, and foreclosure is “Sub2” the 1st lien. If the property sold at Sheriff’s sale (you chose not to buy it), for $110K, 1st lien gets their 100K, and you, 2nd lienholder, get 10K.
Lets say the seller had owned for 24 months and then sells to you for 100K, and you resell immediately for 130K.
The note you just took over Sub2 is 97,468.24, first payment is 111.65 principle and 487.90 interest.
Your note is 130K, first payment is 57.51 principle and 1083.33 interest.
So, your buyer is using interest money on his note to pay down principle on your note! Now isn’t that just way too cool.
It’s like Double Compounding!