frequently asked questions

Wraparound Mortgages

We have noticed an increase in wraparound mortgages lately. We believe higher interest rates and increased inventory are driving this trend, and we want to make sure people are informed before considering this option.

How it works: A Seller sells the property to a Buyer and owner-finances it, but the Seller does not pay off their existing mortgage. The original lender has a first lien on the property, and the Seller has a second lien on the property. Buyer pays Seller, and Seller pays the original lender.

Benefits: This arrangement benefits a Buyer who may not be able to get a conventional loan. It benefits the Seller by helping to move a property in a slow-moving market and allowing the Seller to charge an interest rate so that they make a profit above what they owe on the original mortgage.

Risks: The original mortgage contains a “Due on Sale” clause, which is triggered if the property is sold. If the original lender does not give written approval of the wraparound mortgage, which they likely will not, then they can call the entire balance due. Also, the Buyer can pay the Seller, and the Seller can keep the money without paying the original lender, which can then lead to a foreclosure of the first lien and loss of the property by the Buyer. With some planning, these are not likely, but they are possible, and anybody going into a wraparound mortgage needs to understand the risks.

If you need help with a wraparound mortgage, call the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300.