Posted by John Behle on October 18, 1998 at 15:03:38:
Your thinking is totally correct. It just gets way too confusing trying to give all details on something in just an article. So I have to draw the line somewhere. In a classroom setting I can always throw the next idea, possiblity or step out, but in an article it is too confusing.
When a wrap is recorded, it is in a subordinate or junior position to any existing financing that is not paid off. So, if there is a first, the wrap is in a second position. If the first is paid off or in any way “Re-conveyed”, then the second (wrap) slips down into a first position. In the case of refinancing for a larger or more attractive first, you need a subordination agreement on the second or wrap. That will take the co-operation of the payor also, since it affects them and they are a party to the wrap. Some could argue that you wouldn’t need that, but I won’t. I always work with the payor. I show them the benefits and “entice” them in some way - - like a trail of $20 bills leading to the title company to sign documents. As I mentioned in the article, I spread the profit around a little. That can include a lower payment, lower rate or shorter term for the payor. It can include a payment or cash or better yet, a credit. Remember the time value of money and you see that you can give thousands off of the tail end of a note for just pennies.