Wraparound Lien Misrepresented Upon Sale, What Are My Options?
Provided by HG.org
Real estate laws are often difficult to understand because they change constantly. The state in which the property is situated has laws that affect what changes apply to the deal or project. This means that if a real estate lawyer is hired, he or she must be versed in the modifications to the law and have up to date knowledge of what this means to the case.
When certain liens or mortgages are placed on a residence, the homeowner must understand what these mean. If a wraparound lien is on a house before it is sold, there must be knowledge of how this may change a sale.
Liens on homes often change how sales work. Wraparound mortgages are often used to speed up the process of selling the property, but it also provides a way to obtain cash instead of payments or loaned monies that take time to come through. This may also lead to buyers closing the deal before the listing has expired so that commissions are not lost for realtors. A wraparound works through financing a home by promissory note of payment. The seller may owe a mortgage, but when he or she sells the home to the new owner, the owed monies are not paid off as with deals where the buyer obtains financing through a bank or lender. When this does not occur, the amount owed originally wraps around the monthly payments received by the purchaser even though he or she already has the deed in his or her name. This means the previous mortgage is still being paid on, but the new owner is unaware of these processes.
Wraparound Mortgage Loans Explained
When someone places a lien on a home, this acts like a mortgage. A wraparound usually does not affect the new buyer, and in many circumstances, the person is not aware that the deal exists unless he or she attempts to place a mortgage on the property. While this would only affect him or her in these instances, the wraparound lien does not usually affect the house in any other manner. There are possibilities of refinancing and paying off the lien with the seller so that a new mortgage may be obtained once this has been completed. If the individual wants to sell the house before the wraparound has been completed, he or she must ensure the seller that sold him or her the property is paid in full. Extra time may cause the new sale to occur at a later date, but few other consequences usually arise through these loans.
Most wraparound deals have the possibility of continuing as long as the loan is paid each month or period agreed to in the terms. Typically this is through the payments being completed with the new owner of the property and the seller making these disbursements to the corresponding bank or lender. Some advantages of these arrangements provide a down payment to the seller, and a cash flow through the loan appropriated by the buyer. If refinancing occurs, another large payment may be received by the seller at that point as well. This is beneficial due to fewer fees, a better price and terms and potentially greater stability with the current bank or lender. For the buyer, a quick closing of the sale occurs without the long processes of applications, checking of credit and other procedures.
Effects to the Buyer
When there is a wraparound lien in place on a property being sold, there are often benefits to both the buyer and seller. Among the quicker sale, lack of various checks and appraisals that the buyer must perform, he or she also profits through time. If there are issues with credit, or a loan is not approved for a mortgage, this wraparound deal presents unique opportunities that permit him or her to lengthen the tie it takes to obtain funding through credit. However, there are terms in a wraparound mortgage that the lender does have the ability to call forth the payment immediately upon the sale of the property. This may cause adverse effects to the buyer if this occurs.
Risks and Legal Assistance
There are some risks to both buyer and seller in these situations, but banks and lenders are in the business of making money and rarely start foreclosure procedures when payments are current. However, if there are any problems with these loans, a real estate lawyer may be necessary to determine if there are any processes that must be completed before a problem arises. If the buyer becomes aware of the wraparound and is then angered by the previous mortgage, a lawyer may be necessary to calm him or her down and explain the situation. It may be necessary to explain how these methods are valid, legal and within the rights of the seller.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.