‘Wrap around’ mortgage wraps in underlying loan

Question: I want to sell my Scottsdale condominium and move back to Iowa to be closer to my children. It is worth $220,000 and the Wells Fargo mortgage is now only $65,000. My son in Iowa is a real estate broker and says that I should be able to sell my home quickly using a “wrap around” mortgage. When my son tries to explain what a “wrap around” mortgage is, I become confused. Can you tell me what a “wrap around” mortgage is? Would a “wrap around” mortgage help me sell my Scottsdale condominium?

Answer: A “wrap around” mortgage is a new loan from the seller to the buyer that “wraps” the underlying loan. Most “wrap around” mortgages are for all or most of the sales price of the home, with little or no down payment from the buyer. In other words, you could sell your home for a $220,000 sales price with a $220,000 “wrap around” mortgage from you to the buyer that would “wrap” the existing $65,000 mortgage.

After the close of escrow, the buyer would make the monthly mortgage payment on the $220,000 “wrap around” mortgage to a servicing agent of a title company that, after first making the payment to Wells Fargo on the $65,000 Wells Fargo mortgage, would then pay to you the remainder of the monthly mortgage payment.

Many buyers with credit problems and little or no funds for a down payment may want to buy a home with a “wrap around” mortgage. A seller may also be willing to take the risk of selling to this type of buyer if the seller has been having trouble selling the home for fair market value. Therefore, the use of a “wrap around” mortgage could make your Scottsdale condominium more marketable.

In Arizona because deeds of trust, rather than mortgages, are commonly used, an “all-inclusive deed of trust,” rather than a “wrap around” mortgage, is the actual name of the document used to “wrap” the underlying mortgage. In addition, title companies that insure a “wrap” transaction require acknowledgement by the buyer of certain disclosures, such as a disclosure that a dueon-sale clause could be enforced by the underlying lender to accelerate the entire amount of the underlying mortgage.