If you sell with a wrap, your buyer runs the risk of the underlying loan being called. Doesn't happen very often, but it does happen. I only do this if I'm dealing with a VERY sophisticated buyer. If your buyer later wants to refi, both the underlying loan and your wrap get cashed-out. Each of you will be requested to provide appropriate pay-off statements.
The Equity Line of Credit is a personal loan but ties-up the property with still another encumbrance. Your buyer's bank will lend in accordance with their appraisal of his credit standing and the net equity in the property regardless of the form of underlying financing.
Regarding insurance, I HOPE you meant to say you have a fire insurance policy and not a Homeowners policy on this rental. You do not have an insurable interest in the property of the tenant. When the tenant buys the property and takes title to the property, he gets his own Homeowner policy. You should be named as an "additional insured" on his policy. The "sticky" part here is that the underlying lender will then be notified that there has been a change in insurance. Since the underlying lender is still involved, they'll want replacement coverage. You have the option to continue with your present insurance coverage and simply have your insurance note your now-new-buyer as an additional named insured. No notice will be sent to the underlying lender in this case. If/when the new buyer refinances down the road, a new insurance policy issued at that time will replace the current policy.
