Lenders that allow wraps

[Brad Crawford]

Are there any hard money/private money lenders that openly allow you to wrap their money with a note to an end buyer?

[Account Closed]

Originally posted by @Philip McCleary:

What’s wrapping? That’s a new term for me

 It's creating a new Deed of Trust that "wraps" the old Deed of Trust. For example, Mike has a house he wants to sell and he has a $150,000 loan on it. The house is worth $180,000 in it's present condition. 

Mike is willing to sell to Sam for $175,000. Sam can't get a loan (for various reasons), so Mike agrees to a "Wrap". An additional Deed of Trust (mortgage) is created by Escrow or an attorney between Mike & Sam. Mike still has his original loan and still is responsible for making payments on it.

Now, Sam has a Deed of Trust (Mortgage) with Mike for $175,000 and makes those payments to Mike. Title passes to Sam. Sam now owns the house. Mike still has his name on the first Deed of Trust and that still needs to be paid monthly until it gets paid off.

So, Sam now owns the house, Sam makes payments to Mike. Mike makes payments to the underlying lender. Any difference between the monthly payment Sam pays to Mike and Mike pays to the original lender goes into Mike's pocket.

Technically it violates the Due on Sale clause. Rarely is the Due on Sale clause enforced. If the Due on Sale clause is enforced at some point, there are several remedies that can be employed.

If that makes your head hurt, take two aspirin and call me in the morning.