Real estate attorneys are sounding the alarm over a growing scam involving wraparound mortgages that targets home buyers and sellers. The mortgages bundle together the purchase of the property as well as the mortgage. Housing attorneys warn that an surge in this sort of seller financing could possibly be bad for both sellers and buyers.
Warnings Pertaining to Wraparound Mortgages
Home owners may be more apt to turn this sort of funding when they are in a big hurry to sell a property because, say, they need to relocate for a job in a hurry. When they can’t locate a buyer, they may arrange for someone who is eager to buy their home to move in and take over their loan payment. This middleman buyer receives a title for the residence, while the mortgage remains in the seller’s name.
But these deals can turn sour. The middleman buyer could start keeping those monthly mortgage payments, and the bank could eventually foreclose on the property, which could come back to the owner. The sellers credit is then ruined.
“They’re taking advantage of poor people who don’t have a lot of knowledge about purchasing a home and putting them at great risk,” K-Sue Park, an attorney at Texas RioGrande Legal Aid told realtor.com®.
Wraparound mortgages were once popular back in the 1980s and 1990s, before fading in popularity. For the past 24 months, they are making a comeback and are also growing in popularity again, says Cassandra McGarvey, a real estate attorney at Sanders Willyard in Houston.
For sellers who need to sell in a rush, they could be better off considering to rent out their properties instead when a buyer can’t be found, experts suggest. As for buyers who can’t qualify for a traditional mortgage, they might have to postpone on home ownership and work on their credit first, Park says.
