Wraparound Mortgages- Sell Properties Faster!

Click here and listen to a phone interview with Salvatore M. Buscemi, Managing Director at Dandrew Capital Partners in New York, about the dangers of not properly, and legally, structuring seller financed notes.

What is a wraparound seller-financed note?

It is simply a second promissory note carried back by a seller who continues to pay the existing first note. The key to a wraparound is that the seller continues paying the first note after selling the property, just as they did before they sold it.

At the same time, they now receive a larger amount from their second note, which is now owed to them by their buyer. The buyer gets title to the property, but the seller remains in control and remains legally responsible for payment of the first note.
The first note, which is now "wrapped around" by the second note, is known as the "underlying" note.

Thus, when you hear people say they just sold property on a wraparound and are still paying their underlying, it is not a secret code. It is common real estate jargon for a fairly common transaction. A wraparound is also sometimes called an "all-inclusive".

For example, let's say you own property and are paying the underlying mortgage, which has a balance of $30,000.00. You want to sell the property. You would like to sell it for $90,000.00, yet keep control of the $30,000.00 underlying note to make sure that it gets paid. Your best option would be to sell the property for $90,000.00 to a buyer who has an adequate down payment, say $20,000.00, and who qualifies for a wraparound second mortgage note for the $70,000.00 balance.

In this case, the $70,000.00 second "wraps around" your existing $30,000.00 underlying first mortgage. The wraparound does not change the underlying mortgage at all. Your buyer owes you the $70,000.00 second wraparound, while you still owe $30,000.00 to your lender on your underlying mortgage. However, you now have a $40,000.00 equity as follows: Your sales price of $90,000.00, minus the $20,000.00 down payment, equals the $70,000.00 second mortgage wraparound note, minus the $30,000.00 first mortgage, equals a $40,000.00 equity in the second mortgage, your wraparound note.