Hi,
What happens when a wrap falls over? It’s my understanding that if a normal mortgages falls over the bank must sell the property and give the mortgagee the balance after costs. Or the mortgagee must pay if the costs outweight the sale price. Is this how it works with a wrap?
There’s four types of circumstances I have in mind. The first is a wrap customer who after 6 months stops paying and you need to reposess. They’ve not much if any equity.
The second is someone who has been paying for 10 years but suddenly find themselves unable to continue paying. The equity could be as much as half or more.
The third is the wrap customer who wants to or needs to sell the property. Regardless of the equity issues, what are their rights?
Finally, if the property must be sold and the sale doesn’t fully cover what’s owed, how do you get the balance from the wrap customer?
Andrew
If the wrap falls over, you re-wrap it. It is diferent to a mortgage.
In your first example, you re-wrap it.
In your second, you re-wrap it.
In your third, they cannot force a sale because they don’t own the property.
In the fourth, you don’t sell it. You re-wrap it. I can’t see costs being higher than market value unless you are referring to the wrap sale price.
Whether or not the wrappee gets any payment for equity depends on the initial agreement or legal action if you are a dodgy wrapper.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdThanks Robert, much appreciated.
So a wrap is like a mortgage but it isn’t? Regardless of how much the wrap customer has paid into the deal, they could potentially (if you were a dodgy wrapper) lose the lot?
Not wanting to be a dodgy wrapper, what are the usual conditions a wrapper might set?
I imagine the answer could be complex, and I’ve been trying to fathom an equitable way of doing this that wouldn’t mean too much initially out of pocket.
The only three ways I can think to give the original wrap customer something back (if they’re owed anything at all) would be to 1. Pay them outright an amount per a specified calculation, but only when the property was rewrapped or sold, 2. Pay them some proportion of the deposit money from the new wrap customer, 3. Pay them a percentage of the new wrap customer’s payments for a given period (complex and inconvenient for all), or a combination of the above.
I guess option 2 would be the best, but if the original wrap customer has been in it for 10 years, the deposit money wouldn’t seem fair compensation.
Am I missing something here? Any other options?
You would need to speak to others about that. May I suggest FW – Felicity… she knows wraps!
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdThanks Robert, I’ll check her out.
There are various ways to deal with defaults, not all involving courts. You could just let them out of the contract, if no equity, or you could chase them for the rest. If there is equity, then they could sell, renegotiate the loan term, or you could offer them cash settlement etc.
If they want to sell, that is ok. They just organsie a simultaneous settlement, settling with you and then immediately with the new purchaser. This happened to one of mine, and they made more money than I did.
There is another recent post here about a dfaulting wrapper. I think it the the ‘SMH article on wrapper’ post.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry,
I guess it’s how you get your solicitor to word the contract. I suppose I should talk to our solicitors to see if they’re experienced in such contracts.I think it all comes back to equity. If they have no equity (ie only been in a short time) then I say, shame it didn’t work out, and they can walk away. I take the property back, rewrap it and move on.
If there’s equity invovled, in my contracts they have a right to that. In that case I have a couple of options – once we’ve agreed on a value for the property – firstly, I can pay out their equity from my own pocket (minus my expected costs of holding & rewrapping the property), or the house is sold and I pay their equity (minus sale costs) from the sale proceeds. I think once you start trying to get too complicated, such as paying them back over time etc, you’ll get bogged down.
To be honest, though, I wouldn’t spend too much time worrying about the default side of things. It doesn’t happen very often! And when it does, it’s usually pretty early on in the contract.
The crucial factor is to have a lawyer who is EXPERIENCED in wrap contracts draw it up. Don’t waste your time trying to train a lawyer you know to do it.
Keep smiling
Felicity
You must be logged in to reply to this topic. If you don't have an account, you can register here.
