Wrap Financing and the Due on Sale

[HuskyInvestor06]

Hey Guys,

Ok, so I understand that "wrap" financing as any financing which entails collecting payments from a new buyer without paying off the underlying financing.

I've read some sources, primarily those of Bill Bronchick, hearalding the extreme profitability of selling using wrap financing, when employed correctly and under the ideal circumstances.

I understand the concept and how it works, and I will not argue that making a monthly spread sounds very appealing. However, when considering the fundamentals of the transaction itself, wouldn't it follow that as soon as the property was sold to the second party with the wrap agreement, the due on sale would be triggered, thus bringing about the POSSIBILITY that the loan balance could be called due (afterall, the bank might opt not to call it due)? And wouldnt this negate the purpose of the wrap in the first place?

Thanks for your help guys!

[richmortgagebroker]

I understand the concept and how it works, and I will not argue that making a monthly spread sounds very appealing. However, when considering the fundamentals of the transaction itself, wouldn't it follow that as soon as the property was sold to the second party with the wrap agreement, the due on sale would be triggered, thus bringing about the POSSIBILITY that the loan balance could be called due (afterall, the bank might opt not to call it due)? And wouldnt this negate the purpose of the wrap in the first place?

Yes, potentionally this could cause a due on sale, if done correctly like through a properly done land trust usually will not cause an immediate due on sale

Usually the due on sale will only be investigated if it becomes a non performing loan

You could also structure the deal with a wrap by selling the wrap to a private note buyer and they will purchase the whole loan at a discount and pay off the lender in first possition, thus satisfying the due on sale.

It is all in how you structure the deal