Mortgage wrap

[homeowner]

Friends of mine have suggested to me that I do a mortgage wrap on my own property and I am wondering about the legality of it.

They told me what they do/did. First, they had two properties, a rental and their residence. They would refinance one to pay off the deed for the other. Then they started "wrapping" only one property. I have only one property (my residence) and so I am stuck with this option. They got a new Deed of Trust on the property on May 16th. Then they got a Release of Deed on the same property with their original mortgage on May 21st. They say they won't be caught because the recording dates with the county are switched (the Release of Deed is for May 24th while the Deed of Trust is for May 28th.) They've shown me the paperwork and that they've done it twice before without anything happening.

It seems kind of shady to me. How are they getting the county recorder to switch the dates or are they just having the paperwork filed after the dust has settled on the wrap. (their next to last wrap wasn't recorded for nearly two months after they signed the deed of trust)

I've looked on the internet and wraps seem to be legal when there are separate buyers and sellers, but as far as owner wrapping I can't find out anything. I really need some money and this has put a lot of money in my friends' pockets, but I don't want to do anything illegal. Please help!

[Jim Johnson]

Friends of mine have suggested to me that I do a mortgage wrap on my own property and I am wondering about the legality of it.

They told me what they do/did. First, they had two properties, a rental and their residence. They would refinance one to pay off the deed for the other. Then they started "wrapping" only one property. I have only one property (my residence) and so I am stuck with this option. They got a new Deed of Trust on the property on May 16th. Then they got a Release of Deed on the same property with their original mortgage on May 21st. They say they won't be caught because the recording dates with the county are switched (the Release of Deed is for May 24th while the Deed of Trust is for May 28th.) They've shown me the paperwork and that they've done it twice before without anything happening.

It seems kind of shady to me. How are they getting the county recorder to switch the dates or are they just having the paperwork filed after the dust has settled on the wrap. (their next to last wrap wasn't recorded for nearly two months after they signed the deed of trust)

I've looked on the internet and wraps seem to be legal when there are separate buyers and sellers, but as far as owner wrapping I can't find out anything. I really need some money and this has put a lot of money in my friends' pockets, but I don't want to do anything illegal. Please help!

As to what your friends are doing, I guess we could get into commenting about it but without them posting what is really going on we are all second guessing the facts... so I will not go there.

Now to the wrap... sure they are legal... Every time I lease out a home... if I have a loan on the property... I am doing a 'wrap' of sorts. There are many ways of looking at wraps, be them lease/options, contract for deed or a recorded wrap. You will have to research how your state handles the recording of deeds, and with this info you can determine in short order what you need to do to wrap your current home. Really a wrap is sort of like a second mortgage... the key could be... if you deed the home to the new owner... you might trigger the due on sale clause. There are options to buffer the ownership from this action through land trusts or other means, some people outright tell the lender they have deeded the home over. I do not wrap financing, though would lease option, so I have no personal guidance I can give here. I would just say to not take the first answer at face value... what is right for one investor might be wrong for another. If I were to do a wrap, on the buy side or sell side... I would have the paperwork held by a attorney just in case there is a problem with either party. I would also have the property deeded out of the original owners name into a LLC, LP, Land Trust or some sort of entity with the sole possession of that entity being the home (MH Park, Apartment building etc). I am sure there are others that do this all the time that will chime in here... good luck!

[Aldo]

If there is enough equity in your home to include it in a wrap, why not get a HELOC? It would effectively be the same and would be much simpler to deal with when filing your tax returns. On second thought, it would be hugely simpler to deal with and probably less expensive depending on your bank's requirements.