Subject To vs Wraps Similarities and Differences Part 1

[Account Closed]

Subject To and Wraps are very similar and yet, very different.

Subject To & Wraps share these characteristics

1. You are taking over payment of the mortgage and transferring the property into your name
2. You become the owner
3. The loan does not get paid off
4. The lender can and sometimes will call the Due on Sale
5. You have to have money or credit to solve a Due on Sale call
6. They are used when someone doesn’t have much equity and doesn’t want to pay a real estate agent
7. They are used when the seller wants to sell fast
8. They are used when the property isn't really a good candidate for the MLS because of the condition of the property
9. They are used when It’s a unique property and it’s hard to find comps
10. They are used when it’s a distressed situation that needs to be resolved
11. They are used when the monthly payment is below market rate (that means it cash flows)
12. They are used when the seller wants to avoid the hassles of listing

Subject To & Wraps Differences

1. In a Subject To, NO new mortgage is created.
2. In a Wrap you ARE creating a new mortgage that “Wraps” around ( includes) the existing mortgage. (just like a 2nd but shows up as one loan that has two payments each month)
3. You do these when the seller has a lot of equity and will do a “carry back” instead of requiring cash at closing.
4. In a Subject To, There is NO safety for the seller. They CAN NOT foreclose if you stop making payments,
5. In a Wrap There is safety for the seller. They CAN foreclose if you stop making payments,
6. It Costs a little more ($1500) to do a Wrap because a mortgage has to be created
7. You become the owner in either situation
8. In a Subject To you send the payment to the lender (servicer)
9. In a Wrap, you send the payment to the lender (servicer) AND you send a payment to the seller.
10. There is a “Mirror” Wrap and there is a “Carry Back” Wrap.
11. A Mirror Wrap is taking over the exact payment. If the payment is $1,234,56 your payment is $1,234.56.
12. A Carry back Wrap is taking over the exact payment plus the “Carry Back” amount to the seller. If the payment is $1,234,56 your #1 payment is $1,234.56 to the lender and if you did a Carry back of $50,000 @ 4% your Carry Back payment is $238,71 to the seller

There will be more in Part 2 of

Subject To vs Wraps Similarities and Differences Part 2

[Andrew Kiel]

This is some great information for anyone looking to better understand creative financing/wraps/subject to transactions. @Account Closed - it's great to see other active practitioners that are willing to share their real world knowledge!

[Andrew Kiel]

John is still actively buying real estate as well as teaching.  Ken is referring to my mentor, John Burley, who I am incredibly grateful for. 

[Felicia Ray Owens]

I agree, this is really good information. Waiting for part 2

[John Clark]

Quote from @Account Closed:

Subject To and Wraps are very similar and yet, very different.

Subject To & Wraps share these characteristics

1. You are taking over payment of the mortgage and transferring the property into your name
2. You become the owner
3. The loan does not get paid off
4. The lender can and sometimes will call the Due on Sale
5. You have to have money or credit to solve a Due on Sale call
6. They are used when someone doesn’t have much equity and doesn’t want to pay a real estate agent
7. They are used when the seller wants to sell fast
8. They are used when the property isn't really a good candidate for the MLS because of the condition of the property
9. They are used when It’s a unique property and it’s hard to find comps
10. They are used when it’s a distressed situation that needs to be resolved
11. They are used when the monthly payment is below market rate (that means it cash flows)
12. They are used when the seller wants to avoid the hassles of listing

Subject To & Wraps Differences

1. In a Subject To, NO new mortgage is created.
2. In a Wrap you ARE creating a new mortgage that “Wraps” around ( includes) the existing mortgage. (just like a 2nd but shows up as one loan that has two payments each month)
3. You do these when the seller has a lot of equity and will do a “carry back” instead of requiring cash at closing.
4. In a Subject To, There is NO safety for the seller. They CAN NOT foreclose if you stop making payments,
5. In a Wrap There is safety for the seller. They CAN foreclose if you stop making payments,
6. It Costs a little more ($1500) to do a Wrap because a mortgage has to be created
7. You become the owner in either situation
8. In a Subject To you send the payment to the lender (servicer)
9. In a Wrap, you send the payment to the lender (servicer) AND you send a payment to the seller.
10. There is a “Mirror” Wrap and there is a “Carry Back” Wrap.
11. A Mirror Wrap is taking over the exact payment. If the payment is $1,234,56 your payment is $1,234.56.
12. A Carry back Wrap is taking over the exact payment plus the “Carry Back” amount to the seller. If the payment is $1,234,56 your #1 payment is $1,234.56 to the lender and if you did a Carry back of $50,000 @ 4% your Carry Back payment is $238,71 to the seller

There will be more in Part 2 of

Subject To vs Wraps Similarities and Differences Part 2

Numbers 5 and 6 of similarity are dubious as a practical matter.


A seller can always interplead you (the buyer) in a mortgage foreclosure so you have no protection from a deficiency judgment.

From one of your prior posts to me when I took you guys to task about “subject to” you remarked that it’s just numbers. I took exception to that.

”Except to” is risky unless one has the cash on the barrel head to clear the debt on demand. People who are doing subject to with those kinds of resources are unicorns. Unicorn hunting is not a career move. 

As soon as you start taking refuge in the odds of the bank foreclosing you concede my point.

By the way — do you have an interest in getting people to buy subject to, either through a course you offer for consideration, or from property you want to lay off?

[John Clark]

"In a Wrap you ARE creating a new mortgage that “Wraps” around (includes) the existing mortgage. (just like a 2nd but shows up as one loan that has two payments each month)

You do these when the seller has a lot of equity and will do a “carry back” instead of requiring cash at closing.

In a Subject To, There is NO safety for the seller. They CAN NOT foreclose if you stop making payments,"

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In a subject to, as in a wrap, there is no safety for the buyer either -- he can lose his title (and equity if the foreclosure sale doesn't generate enough money) when the seller's lender forecloses, and he will be a party to the foreclosure as an interested party.

Don't get me started on the appropriateness of subject to and wraps for those nearing retirement and the use of their 401(k), IRA, or pension accounts -- even if they are qualified or accredited investors.