Wrapper defaulting

And that is why, as, an ethical wrapper, you would encourage your wrappee to place a caveat against the property….. to protect their interests…….

You may know the cost of everything…. but what about the value ????

Terry,

Yes, but how is the bank going to sell the property when there is a caveat lodged at the land registry ??? they would not be able to transfer name on title…..

A situation like the scenario mentioned above is the reason why, if you decide to buy a wrap property, you do your homework on the wrapper you deal with, and, how they operate…..

– Are they licenced ?
– Do they follow a standard of ethics ?
– Are they open & disclosing their operations ??

HOMEWORK – is the key…..

You may know the cost of everything…. but what about the value ????

My understandingn is the the bank can lodge a lapsing notice which gives the caveat holder a limited time to apply to the Equity Division of the Supreme Court for an interim injunction and declarations as to the caveat holders interest in the land, failing which the caveat lapses. Unless the caveat holder can prove at a hearing that he/she has an equitable interest in the property the court will not grant a final injunction and the transfer will be able to registered at the R-G’s office.

Caveats are only what they mean literally..a “warning” that the caveat holder has an interest in the land..the caveat holder will need to prove this if issued a lapsing notice (caveat from Latin meaning “beware”..i.e. cave canem..”beware the dog”). Caveats should not be considered as giving the type of protection that a mortgage would give.

What a load of dribble…

If wrapper equates to landlord, and wrapee to tenant, then its the same as saying that a tenant should ask their landlord for proof of payment of the mortgage to ensure that the tenant is protected from being evicted if the landlord defualts, for whatever reason.

Tenant: “As proof of ownership and proof of payment, can you supply me with a copy of the title deed and monthly loan statements before I sign the lease???”

Landlord: “Yeah sure, anything else I can do for you….??”

Yeah Right !!!!!!!!!!!

A wrap is inherently positive cashflow, even if offered at the same interest rate as the underlying loan or at an interestbelow the underlying loan, so there is less likelyhood of a wrap owner going bust than there is of a negative geared, negative cashflow landlord.

If both lost their jobs, see who struggles first….
The other point is that many wrappers do this full time ( ie…they have given up their JOB) because they can.

Try doing that with a negative geared property portfolio.
It can be done but you will have to rely on tapping your expected rising equity. Would have to take nerves of steel and a very generous lender.

Most vendor financers are investing to grow a property portfolio..
Why on earth would they default either intentionally, or unintentionally and lose their investment ??

Pelican hit the nail on the head.
What is required is ethical practices and full disclosure.
In other words it need to be regulated by a recognised body.

Vendor financing has been around as long as colony Australia has….its not new, just not so widely used.

It can work equally well for an investor to be the wrapee…allows him to aquire more properety without going to the bank and begging for a loan.

Its also not restricted to lower socio economic groups.
There are yuppies out there with voracious spending habits on multi six figure incomes who are unable ( or unwilling ) to save a deposit.
Prime wrap candidates…for exxy property to boot.

Used properly, correctly, ethically, vendor financing, lease options and other such instruments are excellent vehicles for furthering a property investment portfolio, especially if used in conjunction with “buy and holds” for capital growth…

KP

KP – Nice one [biggrin]

This post I’m sure was started with the best of intentions, but fails to consider many many things…..

OK, if we are going to talk about a wrapper defaulting…… what about the wrappee defaulting ??? If it was just a bank loan, how soon would they be kicked out ??? hmmmmm ???

The wrapper takes a LARGER risk on a wrappee, as, the banks, in general would not touch them……

In Most cases ( I’m generalising here….. ) The wrappee’s payments are easily covering the underlying loan…. so, even IF the wrapper “lost his job” the payments on the house are still secure, that is, unless the wrappee decided to stop making payments……

There are millions of WHAT IFs out there to do with wraps, flips, renos, and, all sorts of properties….. there is ALWAYS going to be some sort of TRUST involved, and, there will always be RISK….

As a wrapper, my risk is higher, because I’m dealing with people the banks won’t touch…….

Protection for the wrappee – well, as I said, right now, the only available option is a Caveat…. which can protect anyone’s interests….

It also depends on your wrap strategy…. we currently have our 2nd re-finance happening right now…. and the wrappee has been with us for only 12 months…… He’s happy, and, so are we…. we are a wrappee’s stepping stone into a normal mortgage….. not their life line for the next 30 years……

All I can do, as a wrapper, right now, is to run our business ethically, fully disclosing EVERYTHING to the wrappee, and, advise them to seek independant legal advice…..

Honesty is the best way to operate… it works well for us….. and quite a few others….

Vendor Financing & wraps, will be here for a LONG LONG TIME….. especially with house afforability becoming an issue….

YES – I do hope there is some formal government regulation…..

WHY is it that wraps get a hard time ??

1) there are some greedy B@stards out there….who stuff it up for the rest of us who are doing it properly….

2) the banks are nervous, because independants are beating them at their own game……

3) Fear of something reasonably new to many people….

A bank makes EVEN MORE profit on a loan than a wrapper does….. and, kicks people out of their homes when they dont pay……

Some people have moral issues with wrapping…. fine…. but, you better get used to it staying here….

I look forward to regulation coming in…. no matter what comes in, we will most likely exceed the requirements, and, if not, be more than happy to meet them….. Either way, we will continue to do business, with clients who are happy we help them into a normal loan…..

OK, ranting mode OFF….[blush2]

Sweet, short & simple answer – Operate with Ethics…. do the right thing by your customers…. [cap]

You may know the cost of everything…. but what about the value ????

Wait a second there Kay….

Caveats – Do protect a person’s interests… You ever tried to buy a property that had a caveat against it…. CANT HAPPEN…..

Wrappees – DO see a statement, showing their outstanding loan amount….. It’s also a UCCC requirement that the underlying loan, is not higher than a wrappee’s loan, so, they are NOT Tenants….

And what ABOUT title ?? do you think it will mean ANYTHING to a bank, if you stop paying your loan for a few months ?? A Bank is less tolerant of defaulters than in most cases, a wrapper would be…….

The issue is about (deja vu here ? [blink]) DOING YOUR HOMEWORK on your provider, just as you would with a bank……

You may know the cost of everything…. but what about the value ????

I repeat my earlier comment….its dribble, misinformed, opinionated dribble, at that.

Its not a matter of agrereing or not.

It is more likely for a wrapee to default than for a wrapper to default.

Some wrapees even go back for more after selling their wrapped property for a profit, why ? because they preferred dealing with the wrapper than they do with a bank. The terms are easier and more flexible.

It is possible for a wrap loan to cost the same in terms of interest rate as would a bank loan, there is less paperwork, your credit refernce file will not reflect the vendor finance loan, this may help you borrow further without the bank telling you that you are at your borrowing limit ( unless of course you like having the bank dictate to you at what level you can no longer borrow funds)

Pelican, you don’t need to justify wraps to the uninformed, just keep building your positive cashflow business. Think on the positive side…more misinformation, less competition.

Infinite, try contacting Tony Cordato or visit his website…he is a lawyer and one of the best informed experts on vendor financing, and is located in Sydney..if your query is of a legal nature, best to conatct a legal expert.

KP

Same here.
Just concentrating on the various avenues we use to generate wealth ( equity mate…) from property.
I have not completed a wrap.
But the last transaction I completed effectively made the vendor a wrapper, and it was by my choice.
ie.. I am effectively the wrapee for want of a better word.
Both parties are happy.
I got the property, and the vendor gets bank interest rates on the money he left in the deal.

The difference as far as I am concerned is that I have taken the trouble and gone to the expense to learn, study and investigate the merits, pitfalls, best case worse case scenarios with regard to vendor financing…at it came up trumps..
It is a very flexible and useful instrument if used correcly, to create win/win outcomes for both parties.

KP

It’s funny that the same old faces pop up, spouting misinformation about wraps, when they themselves have neither wrapped a property, or, educated themselves on wrapping…..

My biz partner and I just wrapped house # 40 this week….. we have NO unhappy customers… We have a HAPPY bank, HAPPY CUSTOMERS..

WHY ?? because we do things from a CUSTOMER’s perspective……

OK, show you what we DO…. if a wrappee defaults, we usually return their deposit…. DOES A BANK DO THIS ???

PLEASE PLEASE PLEASE, unless you have wrapped, please do not post information here as if you knew what you were talking about……

Sorry to flame here folks, but this is getting tiring…… exactly why, I hardly bother to post anymore…..

Too many lurkers here who spend too much time, posting about things they are not totally knowledgable about……

—-
Terryw – Thanks for your good input here on caveats……

So far we have Bought 1 house which had a caveat against it…. everything stopped, until the seller got it cleared off….. same would be the case in a wrappee’s house…. put a caveat against it….

The issue here is, in all honesty about ethics, and, how you carry out your business… it’s not about ripping people off….. it’s about running a finance business…… which in many cases charges lower rates than a bank does…..

peace all…. I’m outta here….

You may know the cost of everything…. but what about the value ????

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