Wrap Around Mortgages? Say it ain’t – Doh?

Seller beware… wrap around mortgages are becoming a hot topic of conversation. At first glance, they might seem like a good way to relieve those who are upside down on their mortgages or are in need of quick debt relief, but sellers must be aware of the risks. It has come up in discussions in the past, but recently a client of ours received a letter in the mail proposing an offer, and this is what you should know…

1)      Because the buyer is taking title “subject to” the existing mortgage, the biggest risk involved is your original lender can exercise their right of the “due on sale” clause and call the entire mortgage due immediately.

2)      The original mortgage payment is due every month regardless if payment is received late or at all by the buyer. If mortgage is not paid on time, a credit risk still remains with the seller because they are in effect acting as the bank or financer of the mortgage. Thus, the seller must foreclose on the home to re-capture the property.

3)      What about insurance and Escrow? This is usually where the most confusion arises and where the most attention must take place. If I had all day to discuss what can go wrong here, I might as well provide you with a link and let you come to your own conclusions.

… http://www.insuranceforinvestors.com/2011/06/insuring-wrap-around-mortgages-the-problem-of-escrow/