Wrap Question...

If I have a home I have taken Subject 2 and I turn around and sell it on a wrap, what happens if the original owner finds out that this deal is for sure going anothe 30 years and notifies their bank of transaction and they “for whatever reason” do call the loan due, what would be the outcome, legally?

Does the new deed holder have to come up with the funds to pay it off, do I?

I can’t figure out the process here.

Sorry for the runon sentence above.

Howdy Catlett:

This can be a real mess. It is better to get the original owners permission up front and let them know what you are going to do first. They need to be motivated sellers to do a wrap or sub2 deal in the first place with not too many other alternatives except foreclosure.

If what you ask does happen then you shouls let your buyer know right away the day you get a notice and give them the chance to refinance. You too can look for financing since you both may have a lot to lose if the lender forecloses. The lender will have to serve notice to all three parties and if they are unaware you can step in and at that time and let them know the title has been transfered. This may require an attorney and you may or may not want to protect your wrap deal depending on the equity. A lot of times too, one of the parties will file for BK and let the judge sort the whole affair out. Like I said it can get messy and some good advice would be to get most of the profit in cash as that is harder to take away than the property.

By working with your seller upfront I hope all this can be avoided. We all want win/win deals for the seller and banker and the tenant/buyer and ourselves.

My feeling on this method is colored by my use of John Locke’s Sub2 course: rather than selling on a 30 year wrap, why not sell on a lease/option with limited term to exercise the option (1 to 2 years)? Or sell on a contract for deed (unless you’re in TX) where the buyer will get the deed after a short term of payments (again, 1 to 2 years, after which they refinance the balance, which you use to pay off the original loan)?
Either of these methods would limit your seller’s long-term exposure on their original note.
Likewise, depending on the remaining equity in the property, you could lease/option for a year and, if your leasers don’t exercise the option, you could refinance the property yourself, pay off the original mortgage and get the seller clear. Now when the leasers exercise the option, or complete the contract for deed, you would keep all the proceeds (after paying off what’s now YOUR mortgage).
Just my .02,


What Andy mentions is correct, exposure over a 30 year period is longer than I would care to go with a Subject To deal, you are trying to make it a win/win for all those involved, keeping the loan in your sellers name for this period of time is not a win for the seller our yourself.