Posted by ray@lcorn on August 09, 2003 at 11:22:33:
I’m still not clear on what is happening, but let me take a shot at understanding and you can correct as needed.
What it sounds like is happening is you’ve borrowed the full amount of the sales price, and the buyer is paying you $30,000 down, and a monthly amount that covers the underlying payment, plus a $600 spread to you?
If so, then the end result is that you owe the bank more than the buyer owes you. That’s opposite the usual “wrap” scenario. Usually the buyer’s note is larger than the underlying mortgage, and the rate and amortization are structured to provide the spread to the seller. That way if the buyer then later wants to pay off the wrap mortgage, the balance on the underlying mortgage is less than the wrap, and the seller walks away with a check for the balance.
But perhaps I misunderstood and you’re only financing the balance of the sales price after the $30T down payment, and structured the buyer’s note at a higher rate than your underlying mortgage. If that’s the case, then the $600 spread is your profit, and if the buyer pays you off early everything should work out.
If the buyer stops paying, your recourse is foreclosure, just as any other lender. So yes, you can foreclose. You remain liable for the underlying mortgage until it is satisfied. As far as that lender is concerned, their contract is with you, not your buyer.
So you are not “in the clear” until your mortgage is paid off. Further, depending on the terms of the underlying mortgage, you could have additional liability. Without getting into a discussion of due on sale clauses and straw man loans, suffice it to say that if there is a due on sale clause or any hint of fraudulent representations, then the original lender has the right to call the note due and payable in full.