Rachel Leber’s Blog

We’ve all heard the term, “wrap around,” but what exactly does it mean? A wrap around mortgage, or simply a “wrap,” is an agreement where the buyer of a property makes monthly payments to the seller of a property, who then pays the original lender each month. This is perceived as a way of an owner “selling” a property to a buyer without the buyer obtaining conventional financing.

While a wrap can be viewed as a traditional sale, in reality it’s anything but.

All mortgage loans contain a “due on sale” clause. That means if the current owner of the property sells or otherwise transfers ownership then the lender can immediately call the loan in completely. In other words the lender says, “Okay, you sold the property, we want our money.” In the past, the due on sale clause was not as prevalent, but now all mortgage loans contain such language.

So how would the lender ever know? First, if it’s a legal transfer of ownership, the sale would be recorded and therefore become public record. Lenders would receive notice from the companies they employ to monitor such transactions. The lender could also find out following the change of the original owner’s mailing address.

Now say the owner of the property tells you that they could “carry the note” for you if all you did was make monthly payments directly to him or her. If your agreement was to pay $2,000 per month, those funds could then be directly applied to their original mortgage payment.

Many wrap arrangements require a substantial down payment from the buyer along with the agreement to make a mortgage payment above and beyond what the real mortgage payment requires. Wraps are typically made because the buyer, the seller or both are unable to secure financing. While it may appear to be a solution to a tough problem, a wrap around mortgage is inherently problematic (and generally not worth the trouble).

For example, what would happen if the seller was notified by the lender that an illegal transfer of ownership took place and the lender activates the no-sale clause and wants all its money back?

First, the seller would have to immediately refinance the current note, which would be nearly impossible because the property would have been sold.  A new lender wouldn’t finance the new deal nor would the buyer, because the lender wouldn’t recognize the new owner.

Second, and perhaps more importantly, what if the buyer indeed made the monthly payments on a regular basis but the owner somehow fell behind and didn’t make the payments to the original lender? The lender would be forced to foreclose on the original owner, meaning that the new buyer would lose the down payment and payments to the original owner!

A wrap around isn’t a “last resort” method of financing, it’s a “no resort.”  Violating the terms of a mortgage, having the mortgage called in by the lender and the buyer losing his down payment and presumed equity with no legal ownership rights is a losing proposition for everyone!

Written by David Reed, Texas-based mortgage banker with more than 20 years experience

and author of Mortgages 101 and Mortgage Confidential.

Have a question? Contact David Reed.

Included with permission via KW’s This Week

Visit http://2ndfridayartwalk.com/ for more information.

The new law, Housing and Economic Recovery Act of 2008, which was signed on July 30th, provides a tax credit for first-time homebuyers. The credit is for 10% of the cost of the home, not to exceed $7,500. A first-time homebuyer is defined that the purchase (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to the purchase.  The home must be the buyer’s principal residence. This credit is effective for purchases after April 8, 2008 and before July 1, 2009.  

It’s always a good weekend to buy real estate lately, but this weekend is also a great one to buy school supplies - you won’t pay sales tax!

G.S. 105-164.13C provides an exemption for certain items of tangible personal property sold between 12:01 A.M. on the first Friday in August and 11:59 P.M. the following Sunday. For 2008, the dates are Friday, August 1st through Sunday, August 3rd. Clothing, footwear, and school supplies of $100 or less per item; school instructional materials of $300 or less per item; sports and recreation equipment of $50 or less per item, computers of $3,500 or less per item; and computer supplies of $250 or less per item will be exempt.

For a complete list of items included and additional information, visit: http://www.dor.state.nc.us/taxes/sales/salestax_holiday.html 

Taming the Jumbo Mortgage

Credit issues? Your lender can help.

We frequently hear we’re supposed to regularly check our credit reports. And staying on top of this is especially important when starting to shop for a new home. There are three main credit bureaus: Equifax, Experian, and TransUnion. These bureaus store consumer credit histories by the millions, and hundreds of thousands of businesses tap these bureaus for their data about you. Unfortunately, mistakes can happen. Especially if you’re not the only “Bob Johnson” or “Susan Smith” who lives in St. Louis. 

Let’s say you receive a copy of your credit report and find a mistake—what do you do?  What if there’s an old collection account showing as unpaid when you have the paid receipt and a letter stating that the account has been settled?

Your credit report will show which of the three credit bureaus are reporting the error, and you’ll get a toll-free number to call.  But if you have ever called one of these numbers, you know to expect anything but friendly service. You know the drill, “Press 1 for English, Press 2 if you are a consumer, Press 3 if you’d like to enroll in our…” and so on.  It’s likely you’ll either leave a voicemail or listen to some sales pitch for a credit protection service. But all you want is to get your credit fixed so you can clean up your report.

You’ll be asked to fax your documentation, fill out some forms and then wait for the bureau to fix the report and update your file. This can take time, sometimes weeks. Luckily, there is an easier way: let your loan officer handle it for you.

That’s right. You can give that very same documentation to your loan officer and they can  have the offending item removed from your credit report in minutes. How can they do it so quickly?

Mortgage lenders use credit reporting agencies. Often. And those same agencies hire customer service representatives to make sales calls to all those mortgage companies.  One of their services allows the lender to provide the corrected documentation showing the collection account as having been paid to the credit agency, who will then update the credit report almost immediately. What once showed up as an “unpaid” collection account now rightly shows as “paid.” It’s that easy.

It’s important to regularly check your credit, and if you do find yourself in a situation where your credit report has an error on it, don’t go to the bureaus directly. Instead, take advantage of the relationship your lender has with the credit agencies. Your mortgage specialist can fix things much quicker than you can.

Written By David Reed, author of Mortgage 101 and Mortgage Confidential. Included with permission from KW’s This Week.

When $5,000 means almost $30,000

In the current market, sellers are often encouraged to make some sort of contribution to help sell a property, such as paying a portion of the buyer’s closing costs. In fact, I’ll wager that this tactic is the most common. “Seller to pay $5,000 of buyer’s closing costs!” the listing reads. But how do you stand out if such seller contributions are common in your market?One way for your listing to rise above the competition is to translate that same $5,000 into nearly $30,000 by permanently buying down the buyer’s interest rate. Here’s how it works:

Press release from the Chapel Hill/Carrboro School System 

CARRBORO , NC — Like the arguments for getting a good education, Carrboro High School reaffirms the compelling reasons for sustainable, green construction.  It’s achievable, aesthetically rewarding, and a wise investment. 

As North Carolina ’s first Leadership in Energy and Environmental Design (LEED^®) certified high school, Carrboro High School makes high grades for sensible energy use, environmental protection, and community stewardship.  It is North Carolina ’s second K-12 facility to earn LEED certification — the first was Third Creek Elementary School, Iredell-Statesville Schools, which earned distinction as the first K-12 school building in the world to earn a LEED v2.0 Gold rating. Carrboro High School earned a LEED Silver rating under the LEED v2.2 Rating System. Both LEED schools were designed by Moseley Architects, Raleigh, North Carolina . Carrboro’s green building is rooted in Chapel Hill-Carrboro City Schools’ “High Performance Building Design Criteria” policy, which emphasizes strategies for energy conservation, water use reduction, high efficiency lighting, and enhanced indoor air quality and acoustics. 

“One of the goals of the school district is to be a good steward of the resources with which the community entrusts us,” said CHCCS Superintendent Neil Pedersen.  “When we build a new school, we have an opportunity to display this commitment by building a green, sustainable facility. In this case, we are proud that the district teamed up with Moseley Architects to build the first LEED certified high school in the state.”

According to firm principal, Jim Copeland, “These strategies drive the school’s overall cost-saving and more healthful learning environment, support student performance as well as offer the Chapel Hill-Carrboro City Schools’ district unique branding opportunities as an environmentally proactive educational facility.”

Project manager, Steven Triggiano highlights the following among the schools sustainable features: three 35,000-gallon cisterns that collect filtered rainwater for toilets with retention ponds to catch overflow for landscape watering; classrooms, gymnasium, media center, and café/commons boasting large windows to harvest daylight; efficient fluorescent lights to supplement rainy days and nights; and daylight and occupancy sensors to automatically turn lights on and off. Several other building features contribute to the school’s energy efficiency.  Helping to keep Carrboro High School cool and reduce the school’s mechanical cooling load is an Energy Star compliant, highly reflective roof membrane.  Solar energy pre-heats water; photovoltaic panels convert light into electricity for mechanical room motors. 

The handling and use of materials also contribute to Carrboro High School ’s status as a green building.  Building materials were obtained from regional manufacturers whenever possible, and over 95 percent of the construction waste was recycled. 

Collaboration with administrators, stakeholders, community residents and project team members Bryan Rider and Melissa Herald, and construction administrator Stephen Nally, early in the design process was critical to identifying sustainable strategies and envisioning Carrboro High School as a green building.  As with all Moseley Architects’ LEED projects, the firm assigned a special coordinator from their Environmental Department.  The project’s LEED accredited professional, Gillian Rizy, was integral to ensuring that sustainability goals were communicated, understood and met during design, and enforced during construction.  The two-story, 148,000 square-foot result delivers not only a state-of-the-art green building, but a school that is comfortable for students and staff, and architecturally in-sync with the town of Carrboro.

Keller Williams ranks # in Overall Satisfaction and for Home Buyers in JD Powers & Associates 2008 Home Buyer/Seller Study

Details are available at:

http://www.jdpower.com/corporate/news/releases/pressrelease.aspx?ID=2008094