Wraparound Mortgages

You 1st will want to be paid out. In most mortgages a subsequent conveyance without paying off the mortgage is an act of default.

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Theoretically yes. But he's also taking some of the risk off of my back. I don't have to worry about finding a new tenant, or worry about the expense of any repairs.

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3 words

Due on Sale

its most likely in your mortgage papers

I do not see anything stating due on sale. In a couple of different sections it states:

"Mortgagor shall not, without the prior written consent of Mortgagee, sell, transfer, forgo, assign, pledge, do anything or permit anything to be done that may in any way affect Mortgagee;s security interests and rights in and to the mortgaged Property, or create or permit to exist any Encumbrance in or against any of the Property, in favor of any person other than Mortgagee."

That's the legal language of a due on sale clause.

The reality is, as long as the bank keeps getting their monthly payment, the odds are, they won't care where it's coming from. This is especially true if the payments are coming from you directly.

Now, if you have an escrow account, and the escrow officer sees a tax bill or something with someone else's name on it... that could present a problem.

However, if the mortgage is performing, again, why would a bank want to do something that is going to mess with that? Foreclosures are expensive and messy and if they push the due on sale clause, that is where they are going to end up.

The only way I could see them getting really upset is, if somehow, their first lien got bumped.

That's not to say this is a good idea, or, that you will never have an issue with it. But it does explain why the other guy has done it before and not had any issue.

By the way, why doesn't the other guy just get traditional financing? Owner financing is used when someone can't get traditional financing, and there is a premium (unless it's a related party deal, which is completely different).

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I met with the guy last night. He said he would make the payments directly to the bank. Him and his wife buy houses to flip. They make some repairs/improvements, then find someone to lease to own. I assume by keeping the mortgage in my name, then he can have a larger portfolio of houses without hitting his credit report and debt to income ratio. It probably also reduces the amount of upfront costs.

Anyway, the offer price wasn't where I would like it, so not pursuing it any further at this time.

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Good for you for avoiding this. You were taking all the risk with this scenario. Imagine if the guy stops making the payments while in the mean time his renter is trashing the place.

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That's close to the same risk I have with a renter. Although I would love to sell it, I'm not desperate to do so. If the offer would have been a lot closer to my asking price, then I would have done it.

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Not really. With a tenant, if you've lived in the house for a reasonable period of time, you wouldn't risk triggering the due on sale clause (that is certainly in your mortgage docs if it's a conforming, owner occupied loan). And even if the tenant doesn't pay the rent, you'd know that immediately and they couldn't (directly) ruin your credit or take you into a default or foreclosure. And evicting a tenant would be a MUCH easier and less expensive process than foreclosing on this purchaser if he defaulted. The prospective purchaser sounds shrewd: he'll take the burden of making the payments to the bank himself. Yeah... he's a

Back in the day, I did more than a few wraps and double closings. And they are (or were) one way to increase the velocity of deals. But in this case, in this day & age, I think you made a wise decision in not pursuing this deal.