Wraps and installment salesįrequently in the sale of real estate, the seller may elect to receive payment in installments, providing the purchaser a convenient financing option while generating desirable tax benefits to the seller. Joe will in turn continue to make payments on the $150,000 underlying mortgage and retain the excess, if any. Jane will make payments on the $500,000 loan directly to Joe. The contract consists of a note for the entire $500,000 payable to Joe. He enters into a contract to sell the real property to Jane for $500,000. Joe owns a commercial property with a $500,000 value and a mortgage of $150,000. However the same financing technique is used in single family real estate investments. The wrap technique is typically employed in transactions involving large commercial loans. Consequently, the principal of the wrap-around loan is the sum of the outstanding indebtedness on the first mortgage and new funds advanced. A wrap differs from a conventional second mortgage in that it requires an agreement between the parties for payment of the first mortgage obligation by the lender. ![]() ![]() Posted by Simon Filip on OctoLearn about wraps and structure better dealsĪ “wrap-around” mortgage (also referred to as a “wrap”) is a subsequent and subordinate mortgage secured by real property where a first mortgage remains outstanding and unsatisfied.
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