wraps - Posted by Kevin Subbert

Posted by Denise FL on November 28, 2000 at 15:00:10:

Ed,

  1. Can you explain how the ownership of title works, in this situation?

and

  1. Is an attorney needed to draw up these papers?

Thanks,
Denise

wraps - Posted by Kevin Subbert

Posted by Kevin Subbert on November 24, 2000 at 06:08:59:

When doing a wrap what other legal forms are needed? Other than an AITD. Is there a course available with the forms? Also, if the note between me and the seller does not impound tax and insurance, can I hold an escrow account for my buyer? Is there any provisions that needs to be taken in order to do so? Since most homeowners consider this a convenience and do not recieve any interest, I would like to hold that money in my money market account so I can use it to make more for myself.

thanks

Kevin Subbert

Re: wraps - Posted by Ed Garcia

Posted by Ed Garcia on November 26, 2000 at 10:48:34:

Kevin,

I’m sorry to say that I can’t tell you about courses available. I do my own thing and have been to busy to know what’s available. I surly can tell you that you’re wrong when you say, (Since most homeowners consider this a convenience and do not receive any interest, I would like to hold that money in my money market account so I can use it to make more for myself.)

Kevin, there is no reason you can’t make money on a wrap. If your first mortgage is lets say 8%, there is no reason you can’t charge 91/2 or 10 on the entire amount.

Example: The sale of a $100,000 property with $10,000 cash down payment by the buyer and a senior loan balance of $70,000, creating a $20,000 shortage, can financed by the seller who would carry back a new wraparound loan of $90,000. This wraparound, called in this case, a purchase-money wraparound, would require the borrower to make the payments on the $90,000 while the seller would retain the responsibility for making the required payment on the undisturbed existing $70,000 loan.

This form of financing can raise the effective yield to it’s holder because interest may be charged on the wrap that is more than the interest being paid on the underlying loan. For example: if the $70,000 carries an interest rate of 8% and the wrap can be drawn for 10%, the wrap owner will be earning a full 10% on equity plus a 2% override on the $70,000 for an impressive 17% effective yield ($70,000 X 2 = $1,400; $20,000 X .10 = $2,000; $1,400 + $2,000 = $3,400 divided by $20,000 = .18). Thus, a wraparound lender could benefit from a profit on an underlying lender’s investment.

Ed Garcia