Can You Sell On A Wrap With A Property You Own Subject To?

[Brian Willie]

Is it legal to sell a house on a wrap that you own subject to in Texas? I know there are quite a few restrictions in TX in general and wondering if anyone can weigh in on this. Thanks!

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @T. Alan Ceshker:

Don't get ttripped up on the sub to vs wrap thing. They are all the same from a documenting stand point -- if you are documenting them correctly.  There is a note and deed of trust with both.  If anyone does not agree -- they have not been doing these for a couple decades and just don't know.

You can wrap a wrap.  I have even wrapped a wrap of a wrap of a wrap.

You need education, disclosure and understanding by the parties involved.  I call it radical transparency.

The last ditch cure for a DOS clause issue if to do a deed flip flop -- deed back to the borrower - show this to the bank -- deed it back to the buyer.  We have had to do this about 5 times and it has worked each time.

But - I always tell my clients: "have a plan B".  Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.

The banks are not gods - they are just entities that do not care much for their customers due to being too big.

Stay safe out there kids

this all works if everyone pulls in the same direction and as you note have ability to cure and refi etc. where it goes wonky is when the wrap buyer squats and the sub to buyer has no real means or is out of the deal and also goes dark.. the original seller gets fubared.  I have cleaned up a number of these deals over the years.. they are all great when they are working and everyone is on the same page but when they are not.. there is extreme risk to the original seller especially in Texas were a bank or lender can get a money judgement on purchase money loan.. out west not so critical original seller just gets their credit trashed if it was not already.. but there is no money judgement available to the lender for a purchase money owner occ loan in first position.

I think the major issue these days is these are  transactions for those with money and experience but with the internet and the Pace Morby's of the world you are going to see a lot of folks with no where near the experience or ability to handle these get into these deals and the train wrecks that will ensue.. I grew up in sub to wrap my Dad was doing them in the 70s and 80s and CA has a Deed of trust specially for this called an AITD  All inclusive Deed of trust great document.

What was your cost to the investor to bail them out?

Were you able to bail out over leveraged properties?

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"The ones I bailed out I actually took ownership of.. and got them out of hot water. there was no room for a loan but enough equity for me to step in and solve the issues.. with the current crop of folks that think no equity or negative equity is OK no ability to rescue them with loans..."

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That's what I've seen as well. The end buyer loses the property, and loses any equity and is stuck with losing whatever money down he placed. If he can even be bailed out. He then has to turn to the investor to be made whole. I suspect those conversations will be in attorney's offices between the two parties.

If there is equity to work with, I've seen the hard money lender charge 12% which on a $400,000 property is $48,000 plus closing costs and a much higher monthly payment to the investor.

Just a side note to the dear readers: I did not say that Subject To or wraps are to be avoided. They are legal. I said that buying using Subject To, then turning around and selling on a wrap is dangerous. For the reasons previously mentioned.

The closing attorney did not answer the question I had about what to do if an investor buys using Subject To, sells on a wrap and there is no equity (as you rightfully say, the current crop of investors believe to be okay to do) 

We shall see as they fail, in Subject To's that are bought over leveraged, or sold on wraps, what course of action the investors will attempt, in order to try to avoid the DOS and what response the regulators will have.

This company I helped had followed a 2004 guru pitching the exact same sub to wrap method we see today.. these deals were in Portland Oregon.. they had done 32 of them.. I rescued about 12 of them .. They LOST ALL their investment I took everything from them and paid nothing to them.. By the time I stepped in lawyer letters were flying complaints had been filed with the AG and they were some scared puppies.. The others basically went to default and were either lost by the bank for the original seller pulled it out . and this company went broke and I basically lost touch with them.  So thats how that played out.

With todays folks thinking zero equity or negative equity is OK there is no bail out.. If it dont work its going to be  a huge mess as you stated very clearly.

I did about 200 sub 2s personally but I never bought if I did not have at least 20% equity day one so I had an exit if needed.. And my goal like it is today was get in get out get paid.. I had zero desire to build a bunch of rentals this way.. And I still dont have a desire to own a ton of rentals.. I made a big run on rentals in 2012 bought 300 of them but soured on it and my partner bought me out.. Those were all C class mid west stuff.. I dont mind helping others buy that inventory through my BRRR funding but I am just not cut out for property management personally.