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.
1] 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 take the property 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 performance deed is executed by the buyer, protecting the seller's interest in the property and providing them with a vendor's lien in certain states. These documents are drafted by third-party attorneys to ensure sellers are legally protected. We work with local attorneys in each state to draft the appropriate legal paperwork that complies with local laws and regulations.
3] Foreclosure Option: Closing paperwork is structured to allow the seller to foreclose on the property within 30 days of default (non-payment). In some cases, the seller may be able to take the property back without needing to go through the foreclosure process. This ensures that the seller retains all proceeds, including the equity they are paid at closing, as well as any appreciation accumulated during the loan term, providing a significant benefit in the event of buyer default.
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 ability to reclaim the property within 30 days of default, the seller retains added equity and appreciation throughout the remainder of the loan term while keeping all the equity paid to them at closing.
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 wraparound financing may trigger the 'Due on Sale' clause in the original mortgage. To mitigate this risk, we close all transactions under a land trust with documents prepared by experienced land trust attorneys. Our title attorneys, with over 20 years of experience and thousands of successful closings nationwide, ensure all precautions are taken before closing. To date, we have not had a single due on sale clause invoked. In over 8,000 transactions handled by our title attorneys, this clause was triggered only five times, all due to parties failing to follow attorney instructions. Additionally, we have attorneys available who can assist in reversing the note being called if such a situation ever arises.
