What is non-qualifying wraparound seller financing (Wrap)?
Wraps are proven, non-qualifying seller financing transactions which have been utilized for more than 100 years as effective sales tools in commercial, raw land and residential real estate transactions. Under Wraps an existing seller’s loan(s)( Prior Note(s)) are not assumed by the buyer, but a seller financed loan is stacked on the Prior Note(s). The Seller remains fully obligated for payments under the Prior Note(s) and no relationship is established between they buyer and seller lenders. The Buyer’s obligations are limited only to the terms of the Wrap note, which is payable to the Seller.
What is the Wally Wrap system?
Designed almost 20 years ago by one of Texas’ best known residential real estate closing attorneys. The Wally Wrap system incorporates extensive real estate & legal experience, proven & specialized documentation, and closing expertise, which is unique in the real estate industry. Our Pre-Closing Conference system is arranged once a contract has been executed. This meeting allows for all parties to meet with the attorney and discuss all aspects of the Wally Wrap. If at the end of the meeting they are not satisfied, then the contract is voided and no costs have been incurred. However, if they have been satisfied then the closing can take place within 7-10 days.
What is a “due on sale clause” in a residential real estate mortgage?
The provision in all mortgages which prevent a sale– allowing a buyer to assume the seller’s existing mortgage (non-qualifying assumption) without prior approval from the lender.
Is transfer of ownership in violation of the “due on sale clause” in a residential mortgage illegal?
Violation of a public law is illegal, i.e. traffic tickets, punishable by fines, etc. Violation of a “due on sale clause” is not illegal. A real estate mortgage is a lender contract under civil law. Texas civil law provides non-judicial foreclosure as the primary lender remedy for breach of a mortgage contract, in the form of payment default.
Do residential mortgage lenders have a history of foreclosing on a Seller transferring ownership, in violation of a “due on sale clause”?
Research of more than 160 years of residential real estate lending in Texas, confirms mortgage lenders make every effort not to foreclose; but when they must, the only reason is for non-payment.
Why do residential mortgage lenders NOT FORECLOSE for violation of a “due on sale clause”?
Lenders have no financial motivation to foreclose. Residential mortgage lenders are investors, motivated by profit. Investors owning the majority of residential mortgages are insurance companies, retirement, and pension funds, etc.; each with the common goal of securing the highest rate of return (interest rate) for the least amount of possible risk (property as collateral).
Are there additional financial reasons residential mortgage lenders DO NOT foreclose for violation of the “due on sale clause”?
- Profit. Lenders receive $250,000-300,000 in payments over 30 years on a $100,000 loan at 6-7%.
- Profit. Loans are front-end loaded with profit (interest); the majority of each monthly payment is interest to lenders over the first half of each 30 or 15 year loan.
- Wall Street. As non-producing assets, Wall Street considers foreclosed property as detrimental to the financial health of the Investor company and can affect it’s stock price.
- More Profit. Lender income is “locked in” by the interest rate. Checks in the mail represent certainty and undiluted profits.
What are the legal reasons residential mortgage lenders do not foreclose for violation of a “due on sale clause”?
Several widely accepted legal theories appear to prohibit residential mortgage lenders from foreclosing in Texas:
- VA approved. Wraparound financing sales are acceptable under VA loans. In effect, the VA has established policy which allows violation of the “due on sale clause” present in each VA loan.
- Different state laws. The majority of lenders make loans in many states, each with different real estate/foreclosure laws Texas is not unique as research supports lenders rarely foreclose for “due on sale” violations in any state.
- Legal fact. As property ownership is sacred in Texas, our homestead law protects homeowners better than all other states. Texas’ wrongful foreclosure remedies are harsh on lenders when the courts decide that the 800 pound gorilla lenders are taking advantage of the little guy homeowner. In other words: “Don’t mess with Texas”…or our Texas property owners!
- Burden of Proof. Texas civil law places the burden on the lender to prove it has been damaged by a violation of the “due on sale clause”. A strong legal theory contends the lender has not been damaged as lender receives payments therefore the loan is not in default. The only measure of damages under a mortgage contract becomes payment default.