WrapArounds V.S. Contract For Deeds...

Comments(10)

• 
  Derek07832nd July, 2004

  hmmm.....this one looks like a tough one...any takers?

• 
  Derek07832nd July, 2004

  These two finance methods seem so similiar to me that I can't figure out the difference between the two. Ás soon as I figure out the difference between the two, i'll post it up.

• 
  jfmlv19502nd July, 2004

  A CFD actually is a form of wrap (AITD).
  
  The difference is how the deed is treated.
  
  On a CFD the deed transfering ownership is held by the seller until the terms of the contract are completed, while on a standard wrap (AITD) the deed is recorded immediately.
  
  John (LV)

• 
  JohnLocke2nd July, 2004

  Derek0783,
  
  Contract for Deed is exactly what it says it is a contract for deed. Meaning when your buyer fullfills the terms of the contract for deed, pays off the loan to you and the lender if this is the case, or re-finances the exising loan, then the buyer or a new lender would get a signed deed from you thereby fullfilling the terms of the contract.
  
  The deed stays in escrow in your name until you sign over the deed.
  
  In Texas there are many hoops you have to go through concerning a contract for deed (to many to mess with it) so some of the investors there are now using a Wrap.
  
  When you do a wrap the deed tranfers (your 2nd trust deed amount owed you by the buyer is wrapped around the first trust deed or orginal lenders loan) to your buyer thereby taking it out of your name and into the buyers name. If the deed did not transfer it would be a contract for deed. So a wrap is used in the case where you need or want to transfer the deed immediately to your buyer.
  
  John $Cash$ Locke
  [addsig]

• 
  Derek07832nd July, 2004

  Man, they really do sometimes come up with extremely different names for such extremely similar concepts.
  
  I would have probably understood this right off the bat if it were:
  
  Wraparound A and Wraparound B.
  or at least
  Wraparound and Contract-for-Deed-Wraparound
  
  Anyways...thanks, you guys were very helpful.
  
  Derek

• 
  Derek07832nd July, 2004

  Ok let i'm going to try to reiterate what I've learned from the site about the 3 types of financing i've been having trouble on in a nutshell. Let me know if i'm understanding these concepts correctly.
  
  A PMM is where a seller "takes back" (finances) the buyer's down payment. This will usually occur if the buyer can't go to the bank or for some reason doesn't want to deal with a bank or because the seller wants to make some extra long term money through the interest he charges the buyer.
  
  A CDA is where the buyer pays the down payment and the seller finances the rest of the purchase price. In this case the title does not pass to the buyer until the buyer pays the agreed-on payments to the seller.
  
  A Wraparound is the same exact thing as a CDA except for the fact that the title passes to the buyer immediately.
  ...............................................................
  
  So knowing this, is it safe to say that both a CDA and a Wrap Mortgage are a PMM? Or is this not the case because a PMM is different from both in that the buyer can only get financing on the down payment and not the rest of the purchase price?
  
  Thank you guys,
  Derek

• 
  jchandle3rd July, 2004

  I thought the old wrap-around was pretty much dead. It was hot 20 yrs ago with FHA and VA fully assumable loans. But newer instruments began using acceleration clauses and adding buyer qualification requirements. So, those old wrap opportunities have been gone for years. And it makes the idea of a wrap nowadays pretty sticky. A lender can squash it easily.
  
  But there may be something new going on that is working.
  
  I just don't see how a seller can transfer a deed thru some kind of wrap-around with today's lending instruments involved.

• 
  active_re_investor3rd July, 2004

  When you offer a wrap you are not making a statement about if the DOS on the 1st will be triggered. Similar to when you do a subject to deal and you are hoping that the DOS is not exercised.
  
  So, the last post is correct that wraps are less common as there is the risk of a DOS (if you consider DOS a risk).
  
  You will find the odd case where there is no DOS on the 1st. There is no legal requirement for a DOS in a loan contract.
  
  John
  [addsig]

• 
  j_owley3rd July, 2004

  dos = due on sale
  
  
  [ Edited by j_owley on Date 07/03/2004 ]

• 
  Derek07833rd July, 2004

  Although it may be pretty much dead nowadays, I think its still important to learn and fully understand the concepts of Wraparounds, PMMs, and CFDs.
  
  Reason 1 being that I have to learn and understand these mortgages in order to pass my present real estate class that i'm taking for my Florida RE license. If it's still in the book, it must still have at least some significance.
  
  Reason 2 being that I think learning and understanding what this old yet basic type of mortgage would be invaluable for creating a solid foundation in the understanding of financing options.
  
  Hopefully, my last post up above which questions whether or not Wraps and CFDs are simply just a type of PMM doesn't come of as insignificant to the guys who have been helping me on this stuff lately since the method of Wraparounds are not used as much anymore. I really wouldn't have known that, but I'd still like to learn the ins and outs of it in order to create an underlying knowledge of the possible possibilities as far as mortgages and financing goes...also so I can get through this damn RE class and get onto some real real estate investing.
  
  Derek..