Could someone give me a detailed rundown on how to do seller financing using a wrap?
For example … I take a property Sub2. It has a small amount of equity in it, and I want to resell it via seller financing, using a wrap. Let’s say the existing loan (30yr fixed @7%) has a balance of $85,000. The home has a FMV of $90,000, and I add a premium of $5,000, making the resale cost $95,000. I ask for $5,000 down from the buyer, and finance the remaining $90,000 with a 30yr loan @9.25% with a 2yr balloon and a one year prepay penalty. The existing loan has a montly payment of $582. The new buyer will be giving me monthly payments of $773, giving me a cashflow of $191/month. The buyer refinances in two years, and I get an equity check for about $95,000 - $84,000 - $5,000 = $6,000.
Therefore, I collect:
$5,000 downpayment +
$6,000 equity check when refinanced +
$191/month x 24 months cashflow =
Great! But how do I set up the wrap to begin with? Is it basically a promissory note filed as a second (junior) lein to the existing financing? What happens if the seller stops paying - do I have to foreclose? How would me foreclosing affect the existing mortgage (and, specifically, my credit)? Thanks!
By your post I am assuming that you are paying the seller and they are paying the bank. It would have been better for you to pay the bank directly and perhaps you can change that. If the seller stops paying the bank you can not foreclose because you already own the property. If your buyers stops paying after you have given them a deed and they give you a note and deed of trust, then you can foreclose on them. You have the right to make the payments directly to the bank is the seller stops paying and sue them for the previous payments that you made.
Your buyer gives you a note for the loan balance and a deed of trust. The deed of trust will set out the underlying financing and the fact that your right to title in inferior to the 1st lien holder should there be a default. This deed of thust is what gives the trustee the foreclosure rights to foreclose without a judge and or jury in Texas. Hope this helps.
Thanks for the info. Yes, that cleared things up a bit. I would actually be the middleman in the deal when finalized. The new owner would be paying me and I would be paying the original lender (and pocketing the difference, of course). Therefore, the new owner would be on the deed. With Texas’ new legislation, Lease/Optioning is pretty much out, and with their previous legislation in 2000/2001, CFD’s are outlawed as well. Seems buying Sub2’s and selling via seller-financing is almost the best route to go these days (if you aren’t looking to hold as rentals). Thanks again.