The Infamous Wrap-Around Mortgage

By: Ben Auten, Esq. for Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP

         With the continued steady increase in home prices for both Clark and Washoe counties, the resurgence of creative financing in order to facilitate closing on residential transactions is inevitable.  In particular, a seller might hear the term, “wrap-around mortgage” when entertaining an otherwise attractive offer from a prospective buyer that is unable to pursue traditional lending options.  A wrap-around mortgage is a loan transaction wherein the lender ultimately takes responsibility for an existing mortgage.  Consider as an example, a seller that has a $100,000 loan on his or her home may decide to sell that home to a buyer for $150,000.  The buyer pays a down payment, say $10,000, and in that context, buyer borrows the remaining $140,000 under a new loan from the lender.  The new loan “wraps around” the existing $100,000 loan since it will become the responsibility of the new lender to stay current on the old loan by making timely payments.  There are a financial reasons that can make the wrap-around structure appealing to a lender and generate legitimate interest in this form of financing. 

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