Wrapping - What happens when I notify bank?

[Brizza]

I'm assuming that it's within the lending contract that I must notify the bank when I'm doing anything - including wrapping it to someone else.

Just wondering what the bank will say when I notify them, will they approve it or deny me doing it? I'm assuming it's a major event as the names on the title of the property change over to the people I'm wrapping into it (correct me if I'm wrong on this point), so I'm wondering how it all works with the bank, if it will work.

 

[Jacque]

As far as it worked when I was back investigating the ins and outs of wrapping, the title actually doesn't change from your name until your wrappees are refinanced with another lender. This usually happens a yr or two down the track, after the tenants have built up a good track record of payments and there's some more equity in the property.
There is, however, something that's known as "possessory title" which gives the wrappees some form of interest over the property. They can also lodge a caveat, in short to stop you from simply stopping payments to the lender and taking off with the cash
Michael G would be able to tell you more, and he's often on the forum answering wrap questions such as yours. He's the expert

 

[Qlds007]

Wow Brizza just stop right there.

The title certainly does not change into the purchasers name as otherwise how would you be able to raise funds against a property that is not in your name.

What happens is they enter into an Instalment Contract and make a series of payments normally over say 30 years which reflect sufficient amounts to repay the purchase price plus interest over that time.

The Transfer Form is also signed and depending on which State the property is based will pay stamp duty against that Transfer assessed against the instalment contract purchase price.

Title remains in the original owners name until such time as the purchasers either refinance or make their last instalment payment.

As security the purchaser has the right under the Property Act to register a caveat against the property to avoid it being sold with their proper consent or lnowledge.

On the funding side the majority of Banks will not allow the property to be wrapped and therefore if you request their permission it will be denied.

 

[michaelg]

Hi,

Think about it from the banks point of view, they've lent you a bucket load of money, in return for some security they can sell in the event that you fail to pay back you loan.

What ever change is left over from the sale and payback of the loan is yours (less costs).

So how would they feel if you told them, "do you mind if someone has a say in the property?"

Basically if you defaulted, then it becomes a public relations nightmare. Wrappee says "I made my payments and the bank took my house" (because you the wrapper failed to service the loan.

However, think about it this way, all a bank does is assess risk. The interest rate on your loan and the amount of deposit paid is all based on risk.

So what does a bank REALLY want to know? The risks...

So take a pen and paper, and write down every possible risk that you, wrappee and bank faces in this transaction. And then work out a way to reduce or minimise that risk.

eg - wrapper doesn't pay - default on loan, bank forecloses, wrappee loses home.

Ok - what can you do to prevent this issue? - simple; prevent YOU from touching the money before the bank gets it.

eg - wrappee doesn't pay - default on loan, bank forecloses - wrapper and wrappee lose house.

Ok - what can you do to prevent this issue? - simple; have a cash reserve to cover x weeks/months of payments on hand for short term drops - have a Credit Code compliant system in place that issues default notices to wrappee and charges fees to cover operating costs if bank charges default fees.

Then you write all these answers in a Process and Policy document (and print it on your letter head) and include it with your business plan and speak to someone in the bank that can think (rather than just enter figures into a calculator) and present them with your business plan and risk mitigation plan.

ie - you must take the time to PLAN your strategy.

Regards
Michael G

 

[lizzie]

i have a couple of wrap properties and my broker had a real struggle to find a bank that would take a vendor finance property on. banks hate them with a vengence, so do insurance companies, because of the legal and public relations nightmare if something goes wrong.

can anyone recommend at broker to brizza who had bank contacts who are prepared to wrap?

basically vendor finance works like hire purchase - you would own the property until the purchaser pays you out the final amount owing. although i do know a few of the professional vendor financers are moving towards the pucasher actually being a tenant - only paying rent plus extra that is banked towards eventual purchase. not to sure how this works as have just heard it one the grapevine.

 

[Simon]

although i do know a few of the professional vendor financers are moving towards the pucasher actually being a tenant - only paying rent plus extra that is banked towards eventual purchase. not to sure how this works as have just heard it one the grapevine.

I think that is a lease option Lizzie.

I have tried to help wrappers get finance before and given up. It is a specialised field and a lot of work. Be prepared to pay a broker on top of his comission if you can find one happy to try it. I don't know any.

Cheers,

 

[johnston]

wraps .. finance and how they work etc

tony cordato is an expert solicitor in wraps and lease options and will talk to you for 15 mins for free .. go to www.businesslawer.com.au .. for his details

jack dempsey is an experienced wrapper and finance broker .. his details are at www.financewraps.asn.au ...

a great forum for all that is at ... www.rickotton.com.au ...

good luck ... regards

 

[Brizza]

Thanks for all your input guys.

Cleared quite a few things up in my head.

 

[Peter_Tersteeg]

As a few people already know, I've spent a lot of time looking for lenders who will accept wraps and generally the policy is they simply won't do them.

 

[johnston]

As a few people already know, I've spent a lot of time looking for lenders who will accept wraps and generally the policy is they simply won't do them.

you simply borrow the money and buy the house. you legally dont have to say anything about wrapping it and i never do. thats ok legally ... my very experienced wrapping solicitor told me. sure the bank people dont understand wraps and will say that so dont say anything to them. ..... then you get the rite solicitor to draw up a "terms contract" between you and your buyer and away you go. ... now your paying your mortgage to your happy bank and your buyer is paying a bit more to happy you. ... one day your buyer says hes got a bank loan .. he hands you the cash for your house and you pay your bank out as you normally would keeping the change for yourself. Wraps works great when you do it rite. there are great educators out there.

regards ... johnston

 

[johnston]

I'm assuming that it's within the lending contract that I must notify the bank when I'm doing anything - including wrapping it to someone else.

Just wondering what the bank will say when I notify them, will they approve it or deny me doing it? I'm assuming it's a major event as the names on the title of the property change over to the people I'm wrapping into it (correct me if I'm wrong on this point), so I'm wondering how it all works with the bank, if it will work.

brizza... wrapping is real ... it is simply selling with a terms contract a property that you already have a mortgage on. years back it was the only way they used to sell farms to each other because the banks wouldnt lend them. It works ... some proper education on the strategy will rule out any worry or guesswork ... regards ...

 

[Peter_Tersteeg]

you simply borrow the money and buy the house. you legally dont have to say anything about wrapping it and i never do. thats ok legally ... my very experienced wrapping solicitor told me. sure the bank people dont understand wraps and will say that so dont say anything to them. ..... then you get the rite solicitor to draw up a "terms contract" between you and your buyer and away you go. ... now your paying your mortgage to your happy bank and your buyer is paying a bit more to happy you. ... one day your buyer says hes got a bank loan .. he hands you the cash for your house and you pay your bank out as you normally would keeping the change for yourself. Wraps works great when you do it rite. there are great educators out there.

regards ... johnston

Hi Johnston,

These days most wrappers simply aren't telling the bank what they're doing. I've even had instances where the lender has said, "Don't tell, we won't ask".

Despite this, you can be assured that wrapping is well outside of most conforming and non conforming residental lenders at the moment. Don't even ask about LMI.

If you don't disclose to the lender, you'll probably be fine, so long as you don't do anything to trigger a title search.

 

[APerry]

Wrap Loans

My brother can place wrap loans. They are not expensive, about 6.8% and he doesn't charge brokerage. His name is Cameron Perry he can be contacted on 0401161769.

Regards
Alistair Perry

 

[Brizza]

Hi Johnston,

If you don't disclose to the lender, you'll probably be fine, so long as you don't do anything to trigger a title search.

I thought that the wrapee's name wouldn't go on the title until the last repayment is payed?

 

[lizzie]

yes, your name/company would stay on the title - but generally the purchaser would have a caveat over the title to protect their interest.

 

[johnston]

I thought that the wrapee's name wouldn't go on the title until the last repayment is payed?

your rite. the wrapees name goes on title after their last payment. the lending bank is not a worry.

 

[Peter_Tersteeg]

I thought that the wrapee's name wouldn't go on the title until the last repayment is payed?

That's correct, I should elaborate my comment...

The wrappee would be prudent to put a caviet on the title to protect their interests. If the lender discovers the caviet they may ask questions and a title search from a refinance or similar will disclose the caviet to the lender.

 

[kiwi]

yes, your name/company would stay on the title - but generally the purchaser would have a caveat over the title to protect their interest.

hey all,
Just a note for you.... the Caveat will NOT have any power over the banks Right for control over the Title... basically if the whole thing goes pear shaped and the lender forced a sale and there are no proceeds left for the wrappees financial interest .... TOUGH!... thats the harsh reality of it all.

The key is to get the Wrapper to set up a escrow trust account (or agree to one set up through his/her solcitor) to look after the funds transfering directly into the wrappers loan on the property and monthly transactions are sent to both parties.
This way if the wrappee does not make payments, the wrapper can see in thier monthly statement from the escrow account. This will give hte wrapper time to cover any missed payments and allow prcessed to be taken to begin reclaiming late payment + penalty interest.
Getting this under control swiftly mitigates the need for it to end up on Today Tonight.....
Cheers
Kiwi

 

[Brizza]

Reopening an old thread! but are the circumstances still the same today for wrapping.

Does anyone know of a good solicitor who can handle the paperwork to set up a wrap?

Is the new purchaser entitled to FHOG and stamp duty concessions like a normal purchaser?

 

[Savanna100]

Hi Johnston,

These days most wrappers simply aren't telling the bank what they're doing. I've even had instances where the lender has said, "Don't tell, we won't ask".

Despite this, you can be assured that wrapping is well outside of most conforming and non conforming residental lenders at the moment. Don't even ask about LMI.

If you don't disclose to the lender, you'll probably be fine, so long as you don't do anything to trigger a title search.

Yes, dont tell because you may get a bank that decides you have triggered the "due on sale" clause of your mortgage and then the whole loan becomes due.

The way to stay out of trouble is to make sure you continue to pay the mortgage even if your wrappee doesnt pay you.