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