Any Pitfalls doing a WRAP-Owner Finance??

[Joel Owens]

Example:

Property: 3 quadruplex buildings on the same street with separate mortgages owned by the same owner.

Sale price: 1,100,000 with buyer putting 15% down.
Owner provides a WRAP of 935,000 at a 5.5% fixed rate.Loan is amortized over 30 years with a 2 year balloon payment due.

Advantages I see.

1.Buyer just has to have 15% down and isn't subject to an appraisal or a lender reserves and underwriting requirements and lengthy time lines to close.

(I find some buyers have the cash but credit,reserves,employment hits a stumbling block with lenders)

2.Buyer purchases on cash flow and occupancy on income approach and NOT comparable sales approach which is typical with 1-4 unit appraisals. (There have been 1 to 4 unit foreclosures that were gut jobs and sales comps are hard to come by)

3.Georgia is a non-judicial state meaning foreclosure costs are low and we have only a 30 day time line to foreclose.

4.Seller would not have to come to closing with money and instead can give credit off the sales price and use the money down to pay brokers commission,closing attorneys fees etc.

5.Seller achieves a higher price with owner finance.

Dis-advantages I see:

1. Seller has to hold a mortgage on the property instead of outright selling them and being done with it.

2.Buyer would have to worry about the money being put down and if the owner doing the wrap gets foreclosed on for not making payments to the senior mortgages the buyer could lose their money.

3.Bank could call the owners mortgage due that financed the WRAP.Although I have heard this is very rare.

Please let me know other things I am missing here

Property is at a 11 cap fully performing at 100% and has for years.

Thanks

[Loc R.]

Joel,

The counterargument to "disadvantage" #1 is that the property seller (wrap holder) is making money (a) on the underlying loan and (b) on the new money. Without knowing the #s I think the terms of the wrap (5.5%, 30 years) are very generous.

As to #2, you can bring in 3rd party note servicing. Payment goes from payor to servicer, and from there it gets disbursed to (1) underlying mortgage, then (2) the wrap holder.