Subject-To vs Wrap Around Mortgage: HELP

[Daniel Mendez]

Good evening BP,

Can someone help me clarify what is the difference between a Subject-To vs a Wrap around mortgage? 

I've definitely done my share of research but I am trying to see if everyone has the same definition of what the difference is. 

Also, can you provide an example of when to do a Subject-To vs a Wrap Around mortgage? 

Thanks In advance!

[Account Closed]

Originally posted by @Daniel Mendez:

Originally posted by @Account Closed:

Originally posted by @Daniel Mendez:

Originally posted by @Account Closed:

Originally posted by @Daniel Mendez:

Good evening BP,

Can someone help me clarify what is the difference between a Subject-To vs a Wrap around mortgage? I've definitely done my share of research but I am trying to see if everyone has the same definition of what the difference is. Also, can you provide an example of when to do a Subject-To vs a Wrap Around mortgage? Thanks In advance!

Easy peasy.

Subject To is when a buyer takes over a seller's mortgage without paying it off and starts making the payments, the title transfers to the buyer's name and the seller has no recourse if the buyer stops paying the mortgage payment (The seller CAN sue the buyer though if payments stop and would probably win) The bank can call the loan due on the Due on Sale clause

A Wrap is where the old mortgage stays in place and an attorney creates a new mortgage for the selling price. The title transfers to the buyer's name. The buyer pays the seller and the seller pays the bank. The agreement allows the seller to foreclose on the buyer if the buyer stops making payments. The bank can call the loan due on the Due on Sale clause

 Thanks for clarifying that, Mike.  I greatly appreciate that. 
Quick question, would you happen to know when you would use one vs the other?

 I always use Subject To if the seller will go for it. I use a Wrap if they won't go for Subject To or if they plan on buying another house in the next couple of years.

Here is a Subject That I've done:

https://www.biggerpockets.com/forums/311/topics/780022-3-ways-to-wealth-in-real-estate-cashflow-flip-hold-here-s-how

Thanks, Mike.

That article that you provided me of the deal that you did really helped clarify some things for me. 

I have another question, so you take over their loan. Do you then file the deed with the city? Also, did you need to call the bank at all so that they wouldn't activate the due on sale clause?

 Yes, you always file the deed for several reasons. Escrow will do that for you. The deed gets filed with the county the property is in (City doesn't have anything to do with it). If you contact the bank they WILL call the loan. You have no reason, legal or otherwise that you need to involve the bank. You do have to have a way to pay off the loan quickly (30 to 60 days) in the event they do call the loan.If you start missing payments they will call the loan. Don't miss payments, it's bad form. ;-)

I do teach how to do creative financing, subject to, wraps, land contracts and how to find "off market" deals. But it ain't cheap. ; -)