Seller Financing, Subject To, and Wraps

[Nghi Le]

We just presented an off-market seller several options to purchase their home, and they seem to be leaning more towards the seller financing route (for the highest purchase price). However, we've never done this before, so we're reaching out to the BP masterminds for help :-)

The situation:
Mortgage of $200k
Seller wants $50k (to be paid when we sell the house)
Total purchase price will be $250k
Planning to flip and sell for $400k

I've been reading through the forums, but I'm still confused on the difference between subject to and wrap-around mortgages. And then someone threw in the term "land contracts", which confused us even more. Which route works best for our situation? Do we keep the mortgage as a 1st lienholder, and then a note to the seller for the 2nd position, or is there a way to tie all of this in one (is that what the wrap-around mortgage does)?

Also, is it better to close this purchase transaction through Escrow or through a real estate attorney? This is in Seattle, Washington.

[Troy Gravett]

@Nghi Le

Yea, you don't have to make interest payments to them each month, you can accrue the interest and then pay in full after the sale.

A wrap (aka All Inclusive Trust Deed) is a bit different. Without getting too logistical, you basically wrap the current mortgage with a larger mortgage between you and the seller. So Seller -> Bank = 200k; You -> Seller 250k. Each month, you pay an escrow company the payment on the 250k note, and the escrow company pays the mortgage on the smaller note and then pays the seller the difference, or what's left over. This prevents a default on the loans to make sure you maintain possession. Better for long term holds