Wraparound Mortgage Buyers

What Is a Wraparound Mortgage?

A wraparound mortgage — also called a wrap, wrap-around deed of trust, or all-inclusive trust deed (AITD) — is a form of seller financing where the new note "wraps around" an existing underlying mortgage. Instead of paying off the original loan, the seller continues making payments on it while the buyer makes larger payments to the seller on the wrap note.

The seller profits from the spread between the two interest rates. For example, if the underlying mortgage is at 4% and the wrap note is at 8%, the seller earns the 4% spread on the underlying balance plus the full rate on the amount above the underlying loan.

How Wraparound Notes Are Valued

Wrap notes are more complex to value than standard seller-financed notes because of the underlying loan. Key factors include:

• Rate spread: The difference between the wrap rate and the underlying rate. Larger spreads mean more cash flow.
• Underlying loan balance and status: The buyer needs to know the remaining balance, payment status, and whether the underlying loan is fixed or adjustable.
• Total equity: Property value minus all liens (underlying loan + any other liens). More equity reduces risk.
• Due-on-sale clause risk: Most underlying loans have a due-on-sale clause. If the lender discovers the property was sold, they could demand full repayment. This risk is factored into pricing.
• Payment history: Consistent payments on both the wrap and the underlying loan demonstrate stability.
• Property type: Residential properties in good condition with owner occupancy get better pricing.

The Due-on-Sale Question

The most common concern with wraparound mortgages is the due-on-sale clause in the underlying loan. This clause gives the original lender the right to demand full repayment if the property changes hands. In practice, many lenders do not enforce this clause as long as payments remain current, but the risk is real and must be accounted for in pricing. Professional wrap note buyers like NBOA understand this dynamic and have experience evaluating due-on-sale exposure.

How to Sell a Wraparound Note

1. Submit your wrap note details: Include both the wrap note terms AND the underlying loan information (balance, rate, lender, payment status).
2. Receive your cash offer: Within 24 hours, you receive a written offer based on the combined risk profile.
3. Close and get paid: We handle all due diligence, including verification of the underlying loan. The buyer assumes the obligation to continue servicing the underlying mortgage.

Frequently Asked Questions

What is a wraparound mortgage?

A wraparound mortgage is seller financing where the new note wraps around an existing underlying loan. The seller continues paying the underlying mortgage while the buyer makes larger payments on the wrap. The seller earns the spread between the two rates.

Can I sell a wraparound note?

Yes. The buyer of the wrap note assumes the obligation to continue the underlying loan payments. Pricing reflects the additional complexity and due-on-sale risk, but wraps with good equity and payment history are sellable.

What is an all-inclusive trust deed (AITD)?

An AITD is the deed of trust version of a wraparound mortgage, commonly used in California and other deed of trust states. It functions the same way — the new note wraps around the existing loan — but uses deed of trust documentation rather than a mortgage.

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