wraparound mortgage

Can anyone talk about warparound mortgages? My seller can owner finance with a wrap around, said he would allow 2 years to season and obtain financing and would show enough equity to get a refi. Property tax appraisal is 45K, he wants 79K which is ok because it is potential commercial.

Also, I have a potential commercial tenant, but need to find out out taxes, insurances, and possible liability :-
A little worried and any help would be appreciated.


Howdy Rea:

A wrap is where the seller leaves the existing financing in place and finances some of the equity in the sale of the property. You make payments to the seller and they pay the underlying mortgage payments. You will get a deed and give the seller a note and deed of trust ( in deed of trust states) to secure the financing. The deed of trust should include information about the underlying loans(s) and have special language dealing with the situation. Only a few paragraphs different than a standard deed of trust. Sellers also may be able to finance the wrap at a slightly higher rate than the underlying loan and also pay off that loan faster than you pay off the wrap note giving them extra income in the later years of the deal if paid until maturity. Most are not done that long as your seller too only wants two years. Be careful here. Two years will roll by fast and he may want to foreclose on the property if you do not pay off the balance in full, Try to get a longer term if possible.

Also sounds like you may be paying too much if the tax appraisal is only $45,000. if you can make money it may not matter. How much can you lease it for?

Sounds like you need to do some more homework. Hope my attempt to explain wraps helps some.


This is my first deal and the property is possibly commercial and I will have positive cash flow w/ a 7.5% interest rate.

Also, he dropped price to 74K and said he could show more equity at time of refi. :-\

If you were to do a wrap with the potenial buyer you would limit your liability. You can buy commercial liability at a reasonable cost so that should not kill a deal.

You also want a way to burst the 2 year balloon if you have any enbedded costs. One way is to increase the interest rate. Another is to have to pay a percentage down to extend.

The biggest issue is to be sure to have a good cash flow because you are paying market price or better. Make sure the property is the sole remedy if you walk. No personal resposibility!

Pay for performance not potential. Get the cash flow if you pay his price. Option it if you have to until you lock in your buyer.

Thanks for all the help 8)

Hello Folks,
Maybe I should start another message but have a question about wraps. Does the original mortgagee (bank) need to be involved to do a wrap on a current loan? Is this just something you go ahead and do or get “permission” from the bank. Also what does this do to the DOS clause? Can the bank call it due?