![]() Wraparound DocumentationĬlosing documents include the usual note, deed, and deed of trust (suitably adapted to a wraparound transaction) but these documents may not sufficiently cover all the miscellaneous wrap details involved. Wraparound financing is sometimes referred to as subordinate-lien financing. Applicable law and regulations are covered in part two of this article. Seller-financing laws and regulations apply, including Dodd-Frank, the SAFE Act, and the Texas Finance Code. If the parties are clear on terms and do not need formal inspections or a title policy, they can skip the earnest money contract phase and ask an attorney to prepare wrap documents for immediate closing. ![]() Wrap paperwork begins with the earnest money contract, which should include an addendum (preferably customized by an attorney) setting forth the terms of the wrap. Wraps may be done on both residential and commercial properties. Specific wrap terms can vary, but the principle remains the same. The main difference between a wrap and a conventional sale is that the seller must wait until the wrap note is paid (or refinanced) in order to receive the full sales proceeds.Īn alternative approach is for the buyer-borrower to make a cash payment to the seller-lender for the seller’s equity, and the wrap note payment will then be structured to correspond closely to the amount of the payment on the wrapped note. Often the principal of the wrap note to the seller-lender exceeds the amount of the payoff on the wrapped note. The original lender’s existing note is referred to as the “wrapped note” and it remains secured by the “wrapped deed of trust.” It is possible to wrap more than one prior note (e.g., an 80/20). The buyer-borrower makes monthly payments to the seller-lender on the wrap note and the seller-lender in turn makes payments to the first-lien lender. This wrap note, secured by a new deed of trust (the “wraparound deed of trust”), becomes a junior lien on the property behind the existing first lien. In the typical case, the buyer-borrower makes a down payment, gets a warranty deed, and signs a new note to the seller-lender (the “wraparound note”) for the balance of the sales price. What is a wraparound transaction?Ī wraparound transaction is a form of creative seller financing that leaves the original loan and lien in place when a property is sold. Part two addresses applicable law, administrative rules, and enforcement. Part one discusses the basics of wraparounds-how they work, the situations for which they are suited, and the documents generally required. PART ONE: WRAPAROUND TRANSACTIONS GENERALLYĭescription of the Wrap Process and Documents
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