wraparound mortgages - Posted by Bill

Posted by Michael Morrongiello on February 07, 2000 at 18:04:29:

John MI;
I have wrapped many older freely and fully assumable FHA / VA mortgages with no problems. That is a wonderful way to earn an interest spread each and every month. As for the wrapping an existing mortgage that contains that dreaded DOS clause I have only done a few of these to date. You see my approach is one of tempered caution. I like to sleep well at night. I don’t want to have to create problems if there is another way to accomplish the same result.

In one instance the underlying loan was at 16% and there was no reason for that lender to call that loan due. In both of the other instances I only provided wrap around financing for a short period of time with the buyer and just to enable the buyer to obtain their own permanent financing. One of those situations was an outgrowth of a lease option buyer who could not get their own financing in order at the end of the option period and so I decided to provide it for them.
ALL of these situations were done with the understanding that the lender COULD call these loans due and that in the event that happen I had a contingency plan to simply take them out and pay them off.

As stated previously, there are several methods that other investors use to circuvent the DOS. Use of an unrecorded land contract type sale, using long term options, placing the property into a land trust type vehicle and then buying it, the PAC Trust, etc.

Are investors “wrapping” loans that have the DOS? Yes it is being done…

Is there more risk associated with this type of structure? You’ll have to be the judge of that…

Perhaps we can hear from some of those practioners and their experiences?

Michael Morrongiello

wraparound mortgages - Posted by Bill

Posted by Bill on February 06, 2000 at 18:37:36:

I read the book by Wade Cook "the realestate money machine"
and I’m alittle confused about how wraps work. Is the due on
sale clause still in effect.I’ve been successful so far
in investing in 4 months I purchased 3 duplexes and would
to start a cash flow of notes.thanks
and God bless

Re: wraparound mortgages - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 07, 2000 at 15:22:51:

A “wrap around” mortgage OR an AITD “all inclusive Trust Deed” is an arrangment where the holder of this loan collects incoming payments from the borrrowers that are obligated on that wrap around instrument and they then in turn make out bound payments to any undelying lienholders who still have liens against the property. Visually think of a Circle within a Circle. The outer circle is the wrap mortgage and the inner circle is the underlying lien or liens.

Wade Cooks premise of buying property below market that has exisiting low interest rate finacing already in place and then selling that proprety for a higher price by offering a wrap around mortgage with a HIGHER interest rate is sound. You can earn the “Spread” between what you are colleciting and what you are paying out each month.

However you have a right to be concerned over the infamous DOS due on sale clause because if your underlying debt contains this verbiage then a sale by you to another buyer may tigger the financing to become due and payable.

There are methods to get around the DOS that many others offer however the best loans to “wrap” are those loans that do not have this restrictive clause contained in them. (Older FHA / VA mortgages, some older conventional loans, and private held loans, etc.)
Naturally these loans are fewer in the marketplace rather than in abundance.

Michael Morrongiello

Re: wraparound mortgages - Posted by John MI

Posted by John MI on February 07, 2000 at 17:23:38:

Micheal, I can conclude from reading your past posts that you are fairly knowledgeable in this area. From your experience, is it fairly common to see mortgages with the DOS clause “wrapped”. This is a strategy that appeals to me, wraparound of original financing, but I am hesitant for fear of the “DOS police” ; ) I am not interested in starting a debate on the subject, I realize the DOS can be a hot topic. I would just like to hear what someone who is not selling a course in the topic experience’s have been in this area. Is wrapping the DOS a common practice?