Wrapping a Wrap – How to Protect All Interests

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  • Hello CFD,
    I am in the process of selling a MHP with seller finance. I bought the park with seller finance, in which we wrapped the existing seller finance mortgage. Are you following 🙂

    Seller A sold the park to Seller B with Seller Finance. There are 5 years of fully amortized payments due on that loan
    Seller B sold to me last year with Seller Finance. We wrapped a new 20 year fully amortized loan around the existing mortgage. We set up a payment processing through a loan servicer that “handles wraps” to ensure that our payments went to both Seller A and Seller B without relying on Seller B to make the payment to Seller A

      We also had the following written into the Promissory Note that we made to Seller B during my purchase:

    Borrower’s Promise to Pay: In consideration of the loan received, and in consideration of the Seller’s agreement to use the payments paid hereunder to pay toward Seller’s existing obligation under a certain promissory note made on October 31, 2016 in favor of Mortgagor/Beneficiary 1, the undersigned promises to pay to the order of Mortgagor/Benficiary 2(hereinafter referred to as “Lender”), the sum of $224,980.45 (Two Hundred Twenty Four Thousand Nine Hundred Eighty and 45/100 Dollars,) (hereinafter referred to as “Principal”), plus interest as follows….

    Repayment of Amount Loaned: Borrower will pay the entire balance due pursuant to the terms of this note including principal, interest and other charges on or before (due date). Lender has agreed to use the payments received hereunder to pay toward Seller’s/Lender’s obligation under a certain promissory note of (Lender Note Origination Date here) in favor of Mortgagor/Benficiary 1. If directed by Lender, Borrower may pay the amounts owed to Mortgagor/Beneficiary 1 directly, and all such sums paid by Borrower will be credited toward Borrower’s debt hereunder.

    I am under contract now to sell the park, with the existing 1st loan and 2nd loan in place. We would be wrapping a 3rd loan around the 2 existing. The buyers attorney doesn’t know shit about wrapping loans and has too much ego to admit it. I am trying to work with the buyer to find a more experienced attorney…..in the meantime, I am looking for any suggestions on how to explain, structure, record in writing the best way to protect all parties involved from the standpoint of assuring that all loans are paid on time, all interests are covered, and there is no risk of defaulting on senior loans in the event that someone in the chain stops paying?



    Yours is a doozy of a question.

    First, when doing Owner-carry deals, I don’t use “Lender” and “Borrower.” A loan was not made. Instead, you deal with terms of the sale – how the seller is to be paid. Instead, I used “Buyer” and “Seller.”

    I believe you are correct about the attorney you are using. You must use an attorney who speaks creative deal making fluently. The attorney currently being used doesn’t.

    Next, your buyer is also not versed in the language of creative financing. If you were doing this deal with a buyer who understood wraps, you would not be having this problem.

    Remember Pete Fortunato’s Benefit’s House? Look at the foundation of every deal. It’s SECURITY. Right now neither the buyer nor the attorney feels secure.

    Maybe try getting everyone in the attorney’s office – I mean Seller #1, Seller #2, you, Buyer, and the attorney. Use poster boards to diagram the deal. Big poster boards. Don’t try to teach wrapping. Instead, explain what is being done. 1) Buyer is buying the park and giving you a secured note. 2) When you receive Buyer’s payment, you pay both Seller #1 and Seller #2.

    You also need to address what happens if your buyer fails to make his payment – which can happen. How will Seller 1 and Seller 2 get paid?

    Hope this helps.

    Bill Cook

    Thank you for the reply Bill. We ended up closing on the “wrap of a wrap” this week. It took us going through 3 attorneys, adding proper verbiage to the Notes and DOT’s, and setting up a loan servicing structure, but it’s done.
    I got my price – the Buyer got cash flowing terms – and 17 septic systems are off my balance sheet.

    My best deals have always resulted from using knowledge as leverage over anything else. Thanks for you help and feedback.

    Congratulations, Jay, on getting the deal done.

    Bill Cook

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