What is a Wrap Mortgage

Wrap Mortgage

Complete Guide to Wrap Mortgage

Everything you need to know about Creating or Selling a Wrap Real Estate Notes

Over 30 Billion Dollars of Seller Financed Notes were created in 2022!

Mortgage (Aka Deed of Trust):  A Legal Security Document that  “secures” a piece of real estate to an obligation to repay money (Promisory Note)

Note (Aka Promissory Note, IOU): A Legal Document between a Lender and a borrower, which the borrower agrees to pay the lender back.  It includes the Amount, Interest, Term, Monthly Payment and balloon amount, if applicable.

Land Contract (AKA CFD, Contract for Deed):  A Mix between a Mortgage and a Rent Agreement.  The borrower agrees to pay a designated amount until a determined date.  At which time the deed is transferred to their name.

Sell Your Wrap Note

What is a Wrap Mortgage?

(Aka wrap loan, overriding mortgage, agreement for sale, or all-inclusive mortgage.)

A type of Seller Finance Junior Mortgage which includes (or wraps-around) the original 1st mortgage.  The seller of the wrap will sell the property to a new borrower who will pay a monthly payment (Principal and Interest) to the seller.

The New Borrower will sign a Promissory Note which includes the cost of the 1st note plus additional amount to cover the cost of the sale price of the home.

Benefits of a Wrap Real Estate Mortgage

  • You are into a property where a 1st position mortgage is at a low interest rate
  • You can create a loan without any capital
  • The new loan allows you to create great cashflow!
  • Sell the new Wrap to a Note Investor, then go get another one to repeat the process.
  • Create an opportuntiy for buyers who don’t qualify for bank mortgages.

Risks of Creating a Wrap Mortgage

  • If the seller still has an existing mortgage, especially one that’s still relatively high, the original lender must agree to this secondary loan.
  • If Wrap Borrower defaults you still need to make the payment to 1st Mortgage
  • If Wrap Borrower defaults you will have to foreclose.
  • Ensuring you have all the legal documents from the original Borrower to speak and act on their behalf for the 1st Mortgage.

*What to look out for “Dos and donts”/Pitfalls

What is needed to ensure Wraparound Mortgage Safe?

  • Ensure all the Subject-to and legal documents are collected from the original borrower are collected.
    • Power of Attorney
    • Authorization forms
  • 1st Position Mortgage holder approves
  • New Wrap Borrower is underwritten correctly
  • Check Usure Laws for your state to stay below max Interest Rate
  • Check Debt License requirements for your state.
  • Ensure the Mortgage and Note is professionally written up.

Selling a Wrap Note for Highest $$

For Note Buyers, there are multiple factors that go into buying a note to come up with a bid price.  The focus is always around the desired return.  If a note is Performing or Non-Performing and what state the property is located.  Note buyers will buy either off of the Unpaid Legal Balance of the note or Property value, which ever is lower.

Create a 80/20 note for the new borrower so that you can sell the 80% and keep the 20%!

Note Factors to reduce the Discount off the Unpaid Principal Balance and get the most money for the note.

  • Lower the term the less of a discount
  • High Interest Rate (Without going over State Usury Rules)
  • Stay in states that have a faster foreclosure process and dont require a Debt License.

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5 Steps of Pre-Bid Due Diligence

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JKP Holdings