"Wrap" Question - Posted by Branden


#1

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.


#2

“Wrap” Question - Posted by Branden

Posted by Branden on October 16, 1998 at 22:19:29:

John, In your article about “Wraps”, you mentioned refinancing the underlying loan to increse your monthly profit & yield. The wraps I’ve done were sold as “contract for deed”, and the short form contract was recorded. My underlying loan on the property is the first mortgage. The recorded contract is technically the second mortgage isn’t it? Let’s say I refinance with a different lender and the first mortgage is paid off, does the contract for deed move into first position, or is first position still open since it’s a contract and not a mortgage? Obviously, if I refinance, a lender isn’t going to want to be in second position with a new loan. Am I thinking this through correctly? Is there a better or different way to sell? If the contract isn’t recorded that’s not a problem, but everyone I’ve dealt with insists (or at least their attorney insists) the contract be recorded. Should I have the buyer sign a subordination agreement? Thanks for the input.

Branden Bestgen