You sold a property on a wraparound and still pay the original loan underneath it. We show buyers both sides of the deal and lay out what each way of selling would leave you with.
Two loans on one property take more work to price than one.
The same worksheet comes with every offer.
| Remaining balance | $129,400 |
|---|---|
| Payments left | 168 |
| Buyer’s target yield | 8.0% |
| Purchase price | $115,000 |
| Discount from balance | 11.1% |
| Our fee | shown on every offer |
| Sell the whole note | Sell 60 payments | Keep it | |
|---|---|---|---|
| Cash today | $115,000 | $56,200 | $0 |
| Payments still coming to you | None | 108 payments of $1,140 | 168 payments of $1,140 |
| Total you receive | $115,000 | $179,320 | $191,520 |
| What you give up | Every future payment | The next five years | A lump sum now |
Illustrative example. Totals add up the payments as scheduled; they assume the payer keeps paying and are not adjusted for the value of money over time.
The wraparound note and security instrumentCurrent statement on the underlying loanUnderlying note and mortgage copiesPayment records for both loansA note on a wraparound mortgage is created when you sell a property with seller financing while your own loan on it stays in place. The buyer signs a new, larger note to you. Each month you collect their payment, send part of it to your original lender and keep the difference. The new note “wraps around” the old one, which is called the underlying loan.
The payer owes you and you owe your lender. Your note stands in second position behind the underlying loan.
A wrap is priced unlike the other types of note. With a standard first-position note, a buyer steps into your place and collects. With a wrap, what you own is the spread: the gap between what the payer owes you and what you owe your lender, and the gap between the monthly payments. As an example, if the payer sends you $1,500 a month and your lender takes $900, the spread is $600 a month. A buyer looks at both balances, both interest rates and both payoff dates before naming a price, because the spread changes if either loan does.
If the underlying payment is missed, the first lender can foreclose and the wrap can be wiped out, even when your payer has never been late. A buyer will therefore want to know exactly how that payment gets made once you are out of the picture. One arrangement is a third-party servicer, a company that collects from the payer and pays the lender directly.
A due-on-sale clause is a term that lets a lender demand full repayment if the property is sold or transferred. Check whether your underlying loan has one. What it means in your case depends on the loan documents and the state, which makes it a question for an attorney, and buyers will raise it at the start.
| Route | The underlying loan | What you receive |
|---|---|---|
| Sell the wrap as it stands | Stays in place, with the buyer in your position | The sale price |
| Pay off the underlying loan at closing | Cleared out of the sale price | What is left after the payoff |
| Sell part of the payments | Stays in place and stays your responsibility | A lump sum now, with the note returning to you later |
Clearing the underlying loan hands the buyer a first-position note with nothing ahead of it, so it is worth pricing even when the payoff looks large. To compare the first two routes we need the figures on both loans, so send us the details of each: the note your payer signed and the loan you are still paying. Where both routes are possible, we price them side by side so you can see what each leaves in your hands. A partial depends on the payer’s record and on you continuing to pay the underlying lender.
Get a current statement on the underlying loan before you ask for offers. It should show the exact balance, the rate and whether it is fixed, and whether the loan is paid up to date, since a late payment on it will come out in the buyer’s review. Confirm too whether property taxes and insurance are paid through the underlying lender or by the payer, since on a wrap each side can assume the other is handling them.
Yes, though the pool of buyers is smaller than for a standard first-position note. Some buy the wrap as it stands. Others will buy only if the underlying loan is paid off at closing.
It depends on the route. Either it stays in place and the arrangement for paying it is written into the sale, or part of the sale price pays it off at closing. We show you the result of each where both are possible.
Not by itself, but buyers weigh it, and what it means for you depends on your loan documents and your state. Have an attorney read the underlying loan before you commit to a sale.
Their rate, payment and payoff date stay the same. They are told where to send payments. If a servicer is put in place, the payer may actually gain some assurance that the underlying loan is being paid.