Posted by Charles Steed on January 26, 2001 at 15:30:28:
Amy-
My understanding is you can legally avoid due on sale with a land trust, but I’ve never used it. There are plenty of experts on land trusts on this board. I can’t offer any advice about techniques I’ve not used.
With a wrap where conventional financing is involved (or seller financing for that matter), the original financing stays in place (see my original post). The lender becomes aware of a title transfer usually because the individual paying the hazard insurance (naming the lender as beneficiary) changes. Even so, in my experience, the bank doesn’t get weird about the transfer as long as the payments continue.
Posted by Jones-GA on January 26, 2001 at 09:19:02:
I’m confused. Maybe someone here can clear this up for me. On a wrap around mortgage, Who is legally responsible for making the loan payment and when does ownership or title transfer? Any help here would be greatly appreciated.
Thanks
Posted by Rick Wheat on January 27, 2001 at 05:28:08:
You may want to sell under a Land Contract/Contract for Deed. This gives you the transfer of some equitable interest to your buyer, but you retail the “legal” title. In some states, (Georgia for instance), a Contract for Deed allows you to recover possession of the property by merely an eviction-type process. Other states, (Florida for instance), requires a full judicial foreclosrue.
Keep in mind that either of these DOES violate most mortgage Due-On-Sale clauses, because an interest in the property has been transferred. However, we are usually not concerned too much over the clause if we understand how mortgage companies work. Besides, under a Land Contract or a Wrap Mortgage, you are still responsible for making the payment to the bank, and you should intend on doing so even if your incoming payments don’t show up. Remember, in this event (if you personally signed for the Note), it’s YOUR credit that gets beat up.
Posted by Stacy (AZ) on January 26, 2001 at 10:50:16:
I take it you are wanting to sell using a contract for deed. You will make your underlying mtg payment from the amount you get from the buyer. The buyer has “equitable title” until the contract is satisfied, and then he will get “legal title” (the deed).
He’ll get the benefit of claiming the mtg interest against his income taxes.
Posted by Charles Steed on January 26, 2001 at 10:12:49:
Wrap is simple.
You own house and make payments.
You sell the house on a wraparound (all inclusive trust deed) and carry your equity for your buyer.
Your buyer pays you what amounts to your original payment plus your equity. Say your original payment was $500, and your amortized equity comes to $200. Your buyer pays you $700.
You take the $700, keep $200 and pay your note of $500.
Posted by Charles Steed on January 26, 2001 at 13:56:48:
A title transfer can trigger the due on sale provision. However, I’ve assumed many “non-assumable” loans. Banks are not in the business of foreclosing on property. They want performing loans. In other words, as long as the payments are coming in, chances are very good they won’t call the loan.
I spoke to an attorney back when I was getting started. He told me that once a bank accepted a couple of payments from someone other than the original borrower, they’ve set some sort of president and have made it very difficult for themselves to call the loan. Bottom line here, this has worked well for me, but I’m not suggesting anyone here try it, because there’s a slim chance it could backfire. Everyone must use their own discretion when doing business. Just passing on some “real life” stuff.
Charles, I read something yesterday about deeding it over to a trust so they can’t call the loan or am I confusing myself? You are saying you never had to do that? Re: accepting payment from someone else…in other words you, the buyer, started paying the mtg co directly, not the seller? Which avoids the “seller not paying” potential problem I take it.