Recent Changes Regarding Wraparound Mortgages in Texas
Are you interested in purchasing a home in Texas? If you are, then you must know that there are various options available to finance your purchase. One of these is the wraparound mortgage, a unique financing option in residential real estate that is not very well-known. In a wraparound mortgage, the buyer takes a mortgage that includes the existing loan of the previous owner.
This may seem like a good option for buyers and sellers alike, but it comes with greater risks compared to traditional mortgage loans. Fortunately, recent changes in Texas have been implemented to decrease some of these risks. In this blog post, we’ll discuss those changes and everything you need to know about wraparound mortgages in Texas.
Firstly, let’s define what a wraparound mortgage is. It is a type of financing where the buyer takes a mortgage which “wraps around” the mortgage of the seller. The seller gives the buyer a mortgage which includes the original mortgage plus a bit of extra financing. The buyer then makes monthly payments to the seller, who in turn pays their own mortgage lender. This arrangement often results in an increase in the seller’s profits as they make some money on the
difference between the two payments.
Now, let’s talk about the recent changes made by SB 43. Effective since January of 2022, this bill has classified wrap mortgages as residential mortgage loans. Moreover, it has made them available only to individuals registered to originate residential mortgage loans, thereby preventing house flippers from taking advantage of the system. These and other stipulations have been put in place to substantially decrease the various risks involved in wraparound mortgages.
One of the bill’s most significant changes is that it now requires an attorney or title company to close a wrap mortgage loan. This helps ensure that the loan is being handled legitimately and that all parties are aware of their rights within the transaction. Before this change, it was relatively easy to conduct wraparound mortgage transactions without involving legal professionals, often
leading to issues that could have been prevented.
Another important change included in SB 43 is that the wrap borrower has up to seven days after receiving the lien disclosure to rescind the loan agreement. This gives buyers an opportunity to carefully review the loan terms and ensure they understand what they are agreeing to before the transaction is final.
Lastly, SB 43 has put some changes in place to deal with the potential for fraud in wraparound transactions. It now requires lenders to disclose upfront whether there is an existing mortgage on the property and subsequently ensure that the borrower understands the terms of both their mortgage and the existing mortgage. This helps to prevent any misunderstandings or
misinterpretations.
In conclusion, wraparound mortgages are a unique financing option that can offer advantages for both buyers and sellers. However, they come with greater risks than traditional mortgage loans. Fortunately, recent changes in Texas have been put in place to decrease some of these risks. If you are considering a wraparound mortgage in Texas, it is essential to understand these changes and work with experienced legal professionals to ensure your transaction is legitimate and secure. With proper guidance and these new regulations in place, wraparound mortgages can be an attractive option in the right circumstances.