You may have heard about them. Are they a good idea? When Austin Board of REALTORS (ABOR) includes this topic in their "Legal Topics" article of the monthly publication Austin REALTOR, I pay attention.
The article does not discuss whether a REALTOR should be involved in such a purchase but it does imply that it's a complcated situation that could put you and your client at risk.
A wrap-around mortgage wraps around the original mortgage which more than likely has a "due on sale" clause. That means that the original mortgage is due to be paid in full if the property is sold. If the homeowner is financing the sale as a wrap-around mortgage to another party and the original morgage company has not been notified; that may be mortgage fraud.
The buyer is taking risks because if he makes payments to the homeowner/seller and that person doesn't make payments to the original mortgage company, the home could be in danger of being foreclosed leaving the new buyer out on a limb. If the homeowner/seller falls into default on the original loan, the buyer will not hear about it from the original mortgage company.
And how is the property being cover with insurance. The original mortgage company will require that the home is covered with the homeowner/sellers name on the commitment but that will not protect the new buyer.
These issues can probably be addressed in a properly written contract so if you are thinking about a wrap-around mortgage, be sure to consult an attorney and make sure you are protected.
I want to be your REALTOR. If you are thinking of selling a house, give me a call. I'm happy to answer any questions you may have about the seller's disclosure or other matters involving selling a home. 512. 589.7988.
If you are interested in finding out more about Austin, living in Austin, real estate or buying or selling a home in Austin, I want to be your REALTOR. And I appreciate your referrals as well. Call or email to find out how I can help you. 512.589.7988 or robin @robinscottrealtor.com