Wrap-Around Mortgage vs Subject 2 - I need advice please!!!!

[Wes Martinez]

Hello fellow BPs,

I'm currently in the process of doing an off-market deal with someone who prefers a type of seller financing in order to save money on closing costs, but they currently have a mortgage on the property.

Here's the deal:

- Asking: 240k

- Current mortgage balance: ~100k

- Rehab needs: 40k

- Value after reno: ~350k (I own the house next door and it was appraised at that after renos)

The plan is to back into an easy refinance in 12 months, all while doing our best to avoid "Due On Sale" clause. I think I've read just about every post on here on DOS, so I'm very well aware that it is a real risk and basically impossible to fully eliminate, but not likely to be called on if payments are made on time and hazard insurance is changed carefully.

I also realize there are more risks than DOS... I.E. seller declares bankruptcy, etc.

I guess my question is... what is the difference between sub2 and wrap-around and which would back me into a refinance the easiest? I've also researched land contracts/contract for deed, but that seems way more riskier for me (the buyer) right? And also haven't found information on these threads on whether a traditional lender would recognize a contract for deed as true ownership and allow me to refinance.

This investor has 8 other properties and I get the feeling their spouse passed or something unfortunate happened (the investor is in their 60s and all their properties have what I assume is their spouse's name on them too) and now they're just slowly off-loading them instead of dumping rehab money into them. I'd love to nail this deal to gain their trust and hopefully have me be their first choice before putting their other properties on the market!! Thank you so much in advance for your advice!

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Quote from @Wes Martinez:

Hello fellow BPs,

I'm currently in the process of doing an off-market deal with someone who prefers a type of seller financing in order to save money on closing costs, but they currently have a mortgage on the property.

Here's the deal:

- Asking: 240k

- Current mortgage balance: ~100k

- Rehab needs: 40k

- Value after reno: ~350k (I own the house next door and it was appraised at that after renos)

Talk to a mortgage broker and ask them if they prefer a Wrap to refinance or a Subject To to refinance and at what LTV & seasoning before assuming 12 months will be enough time.

1) A Wrap is where you have an attorney write a new loan to the seller for eactly the same terms and conditons he has with the lender. Just make sure you do a title report and close through escrow. You pay the seller the monthly payment. They continue making the payment to their lender. The bank can foreclose on them if the seller stops making payments. AND The seller also can foreclose on you if you start missing payments to him. 

2) A Subject To means you start making the payment to his lender and you skip having an attorney write a new loan with the seller. Just make sure you do a title report and close through escrow. The seller has no recourse with a Subject To and the seller can NOT foreclose on you, if you start missing payments, but the bank can still foreclose on him if payments are missed.

He is in violation of the Due on Sale Clause either way, but it is rare, but not impossible, to have the note called. 

Here's a post I did on Subject To that may help

Using Subject To, to Get "Free" Properties

https://www.biggerpockets.com/forums/311/topics/1060320-using-subject-to-to-get-free-properties-a-quick-guideline