Mirror Wrap or Wrap Around financing is a creative real estate strategy where the seller acts as the lender,
allowing the buyer to make payments directly to the traditional mortgage lender. The seller maintains the
existing mortgage while creating a new financing arrangement with the buyer.
Existing Mortgage Terms: Existing terms on the mortgage such as loan balance, interest rate, maturity are
copied/mirrored onto this new "Wrap Note."
According to the new promissory note that gets signed at closing, the buyer would be responsible for making
the mortgage payments moving forward directly to the underlying lender. If the monthly payments change in
the future due to an increase or decrease in the taxes or insurance, the buyer would still be responsible for it.
If the buyer fails to make payments for 30 days, the seller will have an option to foreclose on the property and
take it back from the buyer, thereby keeping all the proceeds, added equity, and appreciation of the property.
1] Faster Sale: It can expedite the sale process as it bypasses the need for bank approval, extensive paperwork,
and appraisal contingencies.
2] Increased Protection:At closing, a promissory note, deed of trust, and special warranty deed are drafted,
protecting the seller's interest in the property. Mirror Wrap provides protection to the sellers with the help of
these documents that are drafted by experienced title attorneys.
3] Foreclosure Option: Should a buyer default on any payment (not pay it within the lender's grace period of
10-15 days), the seller would need to send a cure notice to the buyer, demanding them to cure the mortgage
payment. The standard cure period drafted in the promissory notes is typically 10 days. If the payment is not
cured within this period, the seller would have the option to foreclose on the property, taking it back from the
buyer and thereby keeping all the proceeds, equity, and appreciation anytime during the rest of the loan
term. This gives the seller an option to foreclose on the property within 30 days of non-payments. This can be
a huge benefit for the seller, as they would retain added equity and appreciation if the buyer defaults
anytime during the rest of the loan term.
1] Savings on Expenses: Mirror Wrap or Wrap Around financing can save a lot of expenses in the seller's pocket
compared to a traditional offer. In these creative offers, we save some/all of the buyer's agent commission,
typically around 3% in a traditional sale, plus we pay all the closing costs which can save up to 1% in the
seller's pocket. Overall, netting them more cash in their pocket compared to any traditional offer.
2] Second Lien Protection: Seller would be in 2nd lien on the property, thereby they would be protected as a
lender.
3] Retained Equity and Appreciation: By having the option to foreclose on the property, the seller retains
added equity and appreciation if the buyer defaults anytime during the rest of the loan term.
4] DTI Concerns: If the seller is worried about their Debt-to-Income (DTI) ratio or needing to qualify for another
mortgage, a mirror wrap would allow underwriters to qualify the seller for another property without the long
seasoning period (12 months of loan servicing payments through a third-party servicing company) that are
common in subject-to transactions. This off-sets the DTI by 100%. Some lenders may require showing 12
months of loan servicing payments through a third-party to wash the DTI off. If the seller needs to purchase a
home IMMEDIATELY, we can also implement a lease purchase that the new lender would be able to qualify
those payments towards the DTI. We can refer sellers to lenders experienced in handling these transactions.
5] Avoiding Due on Sale Clause: Implementing a mirror wrap or wrap around financing may trigger the "Due on
Sale" clause in the original mortgage agreement. To avoid this, we close all our transactions under a land trust
with the documents that are drafted by very experienced land trust attorneys who has years of experience
handling these transactions in multiple states. We work with title attorneys who have experience closing
thousands of these types of transactions over 10-20 years in multiple states nationwide, and they make sure
all bases are covered before closing. We have not had a single due on sale being called till date, and our title
attorneys that we work with have had a due on sale being called 5 times in over 8000 plus deals, and these 5
times were because the parties did not follow instructions by the title attorneys.
