All Forum Posts by: Chris Allen

I spoke with my insurance agent I normally use about getting a policy on the property to get rid of my lender placed insurance, and then adding the new buyer as additionally insured. He mentioned that I will be unable to hold a policy on a property that I do not own and I should be listed as the mortgagee on the buyers insurance. So if that is the case, how do I show proof to my lender that I am covered? Do I just keep lender placed insurance and have my buyer get their own with me as the mortgagee? Or is there something else that I am missing?

I can answer satisfactory, but I will refrain because my answer may not be the optimal way to do it. Go to an attorney specializing in Texas real estate transactions who can set the whole thing up - if the attorney you're using is not familiar with the optimal ways to insure wraps you're using the wrong attorney.

The deal fell through, but the attorney/title that we were using were supposed to be well versed in Wraps, but I only personally spoke with the paralegal/escrow officer. What she mentioned was

- They normally reach out to the lender to give them an option to approve the Wrap, if they do, then I can cancel my insurance and the new buyers insurance will suffice having both myself and my lender as mortgagee's I believe?

- If they do not reply or approve, then we move forward with more risk. She did not personally seem as understanding with the particulars with the insurance and said she would need to talk with the attorney, but mentioned If I am able to have buyer added to my insurance then do that, or just add me to their insurance.

The buyer mentioned after I had this question that I should be able to be added on their insurance as not only the mortgagee, but also as additionally insured. Then this could be provided to my lender to show coverage.

Just not 100% sure on how it works with having my lender satisfied that the property is insured if they were to refuse the wrap and keep them from putting forced placed insurance in addition to the buyers policy. I guess this is just where the potential for immediate due on sale clause call would come up?

0 Votes

Killeen, Texas

I am selling a property on a WRAP. My question is about how to handle the insurance because I am hearing mixed things.

I have heard

1) That the buyer can just be added as additionally insured on my insurance.

2) That I can be added on as additionally insured on their insurance

3) That I need to hold my own insurance and the buyer needs to have their own as well.

0 Votes

Killeen, Texas

Quote from @Kevin Mirise:

Title insurance requires different policies and premiums for each entity (lender, buyer, wrap buyer). But your question seems to be talking property/casualty/liability coverage here, not title insurance, is that correct? Wouldn't the mortgage holder already have asked to be named on your existing policy? I've never heard of a lender having their own separate casualty insurance policy. One of the biggest problems that can crop up with a wrap is that the first mortgage holder is alerted to a change of ownership via the insurance policy update, and calls the mortgage as immediately due in full. So it can be much better to keep the existing policy, with you as the primary insured entity, and add the wrap buyer as additionally insured. At some point in the future, either on policy renewal, or when the existing first mortgage is paid off or refinanced, the wrap buyer can get their own carrier and policy to replace your existing one, if they prefer. I totally agree with your point that if the property burns to the ground next week, and you have two different underwriters with liability -- one to you, and one to your wrap buyer -- neither insurance company will want to pay a penny. Each one will be using their droves of attorneys to find a way out of any liability, and instead trying to put the other insurance company on the hook. You will be left waiting years, with your own domino effects and legal bills, for the mess to resolve.

I am in a similar situation as the original poster. I just spoke with my insurance agent and he mentioned that I am unable to hold a policy on a property that I do not own (Since deed will be transferred, I can not hold an insurance policy on the property), so how do I go about fulfilling my lenders insurance requirements? Do I just keep lender placed insurance on my end and tell my buyer to get insurance with me as the mortgagee?

0 Votes

Fort Worth, Texas

Quote from @Bryan Hancock:

I write wraps in Austin almost on a weekly basis. Comments:

1. Your interest rates are low. 8.5% is around the "market rate" for owner finance buyers right now...30-yr, fully-amortizing

2. A $30k down payment is going to DRASTICALLY limit your pool of buyers. If you can sit on the sidelines and be choosy this requirement is fine, but you are going to have to kiss a lot of frogs before you find someone with that much cash on a wrap sale transaction...it may take 6+ months unless you advertise like a mad man

3. You have the DOS clause to worry about. I am assuming you know about this, but you may want to consider doing something like a Wally Wrap so that you have an asset to show your next lender prior to your note seasoning. This only really matters if you plan to buy a house again soon...within 9-12 months

4. Instead of doing a 3-yr bullet you may consider making the note adjustable at 1% escalation annually past year 3. This will put you more in line with the market. If you need that equity that soon you may just consider holding out to sell the house outright

5. If you PM me I can get you in touch with a processing company with fair rates. I would suggest that you make the payments on your mortgage yourself and just using the processor for the wrap note

I know this is a really old thread, but I just messaged you. I am looking to do a Wrap in Temple and would love to talk to you about this.

0 Votes

Quote from @Ken M.:

Quote from @Chris Allen:

Quote from @Ken M.:

Quote from @Chris Allen:

Quote from @Ken M.:

Quote from @Chris Allen:

Long story short, I am in a difficult situation with a property of mine and need to get rid of property. We have an offer for someone to purchase our property via Subject To.

Anything I need to be aware of or make sure they do for my protection? This is what they said.

This is what the buyer said.

1: We agree to sign a deed in lieu at closing. In the event we are more than 30 days late on payment the agreement becomes void. Seller retains full ownership.

There is also a provision in the promissory note that states in the event of default, we must deliver the property back in the same or better condition from the time of purchase.

2: We will deed the property back to the seller & execute a contract for deed. The terms remain the same, we still pay the monthly mortgage payment. The only difference is the seller remains on title until we have enough equity to refinance or sell.

3: Typically we don’t agree to balloons. The market may vary one way or the other & we don’t want to be stuck coming out of pocket on the backend as well.

If it was needed to get the deal done, the minimum balloon we could offer is 10-12 years.

Never SELL using "Subject To". I can explain why, because I buy Subject To. If you want more detailed advice, I can provide it.

You BEST option is to contact a bankruptcy attorney and find out your other options. That doesn't mean you have to file bankruptcy, but you do need to know there are better solutions than Subject To when in foreclosure.

If you sign a deed in lieu, that means you will no longer own the property and will probably never be able to buy it. It is no longer yours. Period. Doesn't matter what they promise. It's a dishonest promise.

If you are in foreclosure, it sounds like you are either there or headed that way, what you are encountering is a "foreclosure scheme" they are illegal in most places and for good reason.

(I won't do them)

The buyer can be facing "equity skimming" as defined by the law:

Penalties of Equity Skimming

Equity Skimming is a type of Mortgage Fraud. The FBI’s Financial Crimes Unit investigates these matters for filing of charges on Equity Skimming violations. As a result of being federally charged with these crimes, you may face monetary fines, penalties, prison time and other consequences of Equity Skimming.

Equity Skimming and related penalties of sentencing are detailed in 12 United States Code USC Section 1715Z-19. These penalties include:

Five years in prison
Up to $500,000 in fines

Equity Skimming may also result in Conspiracy charges, specifically conspiracy to commit bank fraud and false statements to influence a financial institution. Penalties of these Federal charges may include:

30 years in prison
Up to $1 million in fines

It's a Federal crime.

I'm not currently at foreclosure, but am recently out of state starting grad school, no income, and home needs repairs that I simply do not have the money to make. I can only come out of pocket to cover mortgage so long.

It depends on what your plans for the property are.

Why not sell it? Better to get what you can, than to lose it all.

Why not joint venture with someone who has money, fix & flip it

Why not rent it out for at least the monthly carrying costs.

Why not sell it on a lease option, get 10% cash up front to fund school?

It's been listed on MLS for about 3 mo almost with no traction. The some of the repairs need to be completed before renting out. We recently updated listing to sell as an owner finance (wrap). I just spoke to my realtor and let them know I'm not going to do the Sub-2 right now.

The other issue is that it does not have much equity at all. It was a rental for us about 1-2 yrs after a major remodel. So the initial appraisal for the refinance was good at the time, but now the As-Is is not gaining traction with buyers. I already have money left in the property and hesitant on sinking anymore in.

.
If there isn't much equity, and there is so much to fix to make it livable, why not do a "deed in lieu" with your lender and move on with life? "Fall in love with people, not with houses".

Did your agent do a "cash out analysis" to show how much winds up in your pocket after the sale expenses? They should, so you can see what you are dealing with.

So what do you mean by doing a "Deed in Lieu" with my lender?

0 Votes

Austin, Texas

Quote from @Ken M.:

Quote from @Chris Allen:

Quote from @Ken M.:

Quote from @Chris Allen:

Long story short, I am in a difficult situation with a property of mine and need to get rid of property. We have an offer for someone to purchase our property via Subject To.

Anything I need to be aware of or make sure they do for my protection? This is what they said.

This is what the buyer said.

1: We agree to sign a deed in lieu at closing. In the event we are more than 30 days late on payment the agreement becomes void. Seller retains full ownership.

There is also a provision in the promissory note that states in the event of default, we must deliver the property back in the same or better condition from the time of purchase.

3: Typically we don’t agree to balloons. The market may vary one way or the other & we don’t want to be stuck coming out of pocket on the backend as well.

If it was needed to get the deal done, the minimum balloon we could offer is 10-12 years.

If you are in foreclosure, it sounds like you are either there or headed that way, what you are encountering is a "foreclosure scheme" they are illegal in most places and for good reason.

(I won't do them)

The buyer can be facing "equity skimming" as defined by the law:

Penalties of Equity Skimming

Equity Skimming and related penalties of sentencing are detailed in 12 United States Code USC Section 1715Z-19. These penalties include:

Five years in prison
Up to $500,000 in fines

30 years in prison
Up to $1 million in fines

It's a Federal crime.

It depends on what your plans for the property are.

Why not sell it? Better to get what you can, than to lose it all.

Why not joint venture with someone who has money, fix & flip it

Why not rent it out for at least the monthly carrying costs.

Why not sell it on a lease option, get 10% cash up front to fund school?

0 Votes

Austin, Texas

Quote from @Ken M.:

Quote from @Chris Allen:

Long story short, I am in a difficult situation with a property of mine and need to get rid of property. We have an offer for someone to purchase our property via Subject To.

Anything I need to be aware of or make sure they do for my protection? This is what they said.

This is what the buyer said.

1: We agree to sign a deed in lieu at closing. In the event we are more than 30 days late on payment the agreement becomes void. Seller retains full ownership.

There is also a provision in the promissory note that states in the event of default, we must deliver the property back in the same or better condition from the time of purchase.

3: Typically we don’t agree to balloons. The market may vary one way or the other & we don’t want to be stuck coming out of pocket on the backend as well.

If it was needed to get the deal done, the minimum balloon we could offer is 10-12 years.

If you are in foreclosure, it sounds like you are either there or headed that way, what you are encountering is a "foreclosure scheme" they are illegal in most places and for good reason.

(I won't do them)

The buyer can be facing "equity skimming" as defined by the law:

Penalties of Equity Skimming

Equity Skimming and related penalties of sentencing are detailed in 12 United States Code USC Section 1715Z-19. These penalties include:

Five years in prison
Up to $500,000 in fines

30 years in prison
Up to $1 million in fines

It's a Federal crime.

1 Vote

Austin, Texas

Quote from @Ken M.:

Quote from @Chris Allen:

Long story short, I am in a difficult situation with a property of mine and need to get rid of property. We have an offer for someone to purchase our property via Subject To.

Anything I need to be aware of or make sure they do for my protection? This is what they said.

This is what the buyer said.

1: We agree to sign a deed in lieu at closing. In the event we are more than 30 days late on payment the agreement becomes void. Seller retains full ownership.

There is also a provision in the promissory note that states in the event of default, we must deliver the property back in the same or better condition from the time of purchase.

3: Typically we don’t agree to balloons. The market may vary one way or the other & we don’t want to be stuck coming out of pocket on the backend as well.

If it was needed to get the deal done, the minimum balloon we could offer is 10-12 years.

If you are in foreclosure, it sounds like you are either there or headed that way, what you are encountering is a "foreclosure scheme" they are illegal in most places and for good reason.

(I won't do them)

The buyer can be facing "equity skimming" as defined by the law:

Penalties of Equity Skimming

Equity Skimming and related penalties of sentencing are detailed in 12 United States Code USC Section 1715Z-19. These penalties include:

Five years in prison
Up to $500,000 in fines

30 years in prison
Up to $1 million in fines

It's a Federal crime.

I just messaged you. Would you be open for a quick call?

0 Votes

Austin, Texas

Long story short, I am in a difficult situation with a property of mine and need to get rid of property. We have an offer for someone to purchase our property via Subject To.

Anything I need to be aware of or make sure they do for my protection? This is what they said.

This is what the buyer said.

1: We agree to sign a deed in lieu at closing. In the event we are more than 30 days late on payment the agreement becomes void. Seller retains full ownership.

There is also a provision in the promissory note that states in the event of default, we must deliver the property back in the same or better condition from the time of purchase.

3: Typically we don’t agree to balloons. The market may vary one way or the other & we don’t want to be stuck coming out of pocket on the backend as well.

If it was needed to get the deal done, the minimum balloon we could offer is 10-12 years.

1 Vote

Austin, Texas

Thank you all for the replies! As of right now, we are in the process of trying to sell my SF-LTR.

@Basit Siddiqi two of the properties are STR's and cashflow pretty well. As of now, the cashflow over 3yr would be near if not more than the equity I have right now. My personal residence I think I am going to try and and turn it into an STR and see if I am able to keep it over the next few years.

@Marcus Auerbach that is my exact thought right now. I think I would regret it much more later on, so my thoughts right now are to only sell one of my properties, and decide to sell the others if needed while in school. Not going to school wouldn't be an option for me. This is something I have planned to do for years, and this advancement would triple, if not more, my current income.

@Jason Malabute Cash-out refinance wouldn't be an option for these either. All properties either got financed, or a HELOC during the last 2 years, so the equity available along with the cost of the increased mortgage wouldn't make sense. But yeah, I am thinking right now I would rather just hold.

@Armstrong Maignan, that is not a bad idea to consider. My duplex cashflow's well, so an above market offer would not be a bad consideration at all!

@Gino Barbaro My thoughts exactly. I think I am going to try and hold for now, and sell later if needed. Would be in a lower tax bracket at that point anyways. And if all fails, I could sell after I graduate, and take the proceeds and pay off my high student loans if needed, or just "level up" to a different asset class when I am in another profession.

2 Votes

All Forum Posts by: Chris Allen

Chris Allen has started 42 posts and replied 298 times.

Post: Insurance and Structuring on a WRAP

Post: Insurance and Structuring on a WRAP

Post: Insurance coverage in a wraparound loan

Post: wrap mortgage - how would you structure this?

Post: Selling Home on Sub-To

Penalties of Equity Skimming

Post: Selling Home on Sub-To

Penalties of Equity Skimming

Post: Selling Home on Sub-To

Penalties of Equity Skimming

Post: Selling Home on Sub-To

Penalties of Equity Skimming

Post: Selling Home on Sub-To

Post: When to sell properties

Chris Allen has started 42 posts and replied 298 times.

Biggerpockets Logo Post: Insurance and Structuring on a WRAP

Biggerpockets Logo Post: Insurance and Structuring on a WRAP

Biggerpockets Logo Post: Insurance coverage in a wraparound loan

Biggerpockets Logo Post: wrap mortgage - how would you structure this?

Biggerpockets Logo Post: Selling Home on Sub-To

Penalties of Equity Skimming

Biggerpockets Logo Post: Selling Home on Sub-To

Penalties of Equity Skimming

Biggerpockets Logo Post: Selling Home on Sub-To

Penalties of Equity Skimming

Biggerpockets Logo Post: Selling Home on Sub-To

Penalties of Equity Skimming

Biggerpockets Logo Post: Selling Home on Sub-To

Biggerpockets Logo Post: When to sell properties

Post: Insurance and Structuring on a WRAP

Post: Insurance and Structuring on a WRAP

Post: Insurance coverage in a wraparound loan

Post: wrap mortgage - how would you structure this?

Post: Selling Home on Sub-To

Post: Selling Home on Sub-To

Post: Selling Home on Sub-To

Post: Selling Home on Sub-To

Post: Selling Home on Sub-To

Post: When to sell properties