Question 1

How is a Florida wraparound mortgage structured?

Accepted Answer

FL structure: existing first mortgage (the seller maintains the existing loan: continuing to make payments to the original lender), new wraparound note and mortgage (the seller creates a new mortgage for: the total amount owed by the buyer (existing balance + new financing); the wraparound is recorded as a second mortgage), escrow servicing (a third-party escrow agent: collects the buyer’s payment, pays the existing first mortgage, and distributes the surplus to the seller), and security (the buyer’s interest is: subordinate to the existing first mortgage; if the seller defaults on the first: the buyer may lose the property). The structure: must comply with FL recording, doc stamp, and lending requirements.

Question 2

What are the advantages and disadvantages of the wraparound structure?

Accepted Answer

Advantages for buyer: easier qualification (the buyer may qualify for the wraparound when they cannot qualify for traditional financing), lower closing costs (no lender fees, appraisal costs may be reduced), and flexible terms (the seller can offer: customized repayment terms). Advantages for seller: higher sales price (the seller may command a premium for providing financing), interest income (the seller earns: interest on the new money plus the spread), and faster sale (the property may sell faster with seller financing). Disadvantages: due-on-sale risk, seller default risk, subordinate position for buyer, and complexity (the transaction requires: careful documentation and ongoing administration).

Question 3

What happens if the seller defaults on the first mortgage in a wraparound?

Accepted Answer

Seller default: if the seller stops paying the existing first mortgage: the first mortgage lender can foreclose. The buyer’s wraparound position is: subordinate to the first (the buyer may: lose the property in the foreclosure). Protection: escrow (the buyer’s payments go to an escrow agent who: makes the first mortgage payment directly), notice provision (the wraparound agreement should require: the seller to notify the buyer of any default on the first mortgage), cure rights (the buyer should have: the right to cure the seller’s default on the first mortgage by making the payment directly), and acceleration (the buyer should have: the right to accelerate the wraparound and require the seller to pay off the first mortgage if the seller defaults).

Wraparound Mortgage Structure

FL Wraparound Mortgage Structure

Structure

Advantages

Default Protection

Related Terms

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