The 7 Things You Should
Ask Your Solicitor Before You Pay Them Any Money When It Comes
To Wrapping A Property For Profit
Love them or hate them, solicitors are an
essential part of any property. If there was ever a time for a client
to “cross examine” a solicitor, then that time is when they
desire to enter into a wrap around
relationship.
This scenario must apply to both parties that
are involved in the transaction. The exception, however,
is the first lender, for these may demand a full payment of the
mortgage money.
For a full
understanding of this legally binding agreement, a
solicitor must be asked the following
questions:
1. Wrapping A
Property For Profit - What is a
Mortgage?
For the most
people, a mortgage will mean any loan that is related to
a property. However, your solicitor should be
able to explain it to you that when you mortgage your
property then you have technically assigned or conveyed
your interest in the property to a lender who agrees to
re-convey this interest once the loan advanced has been
serviced. A
full understanding of what a mortgage is and how it works
will give you a better picture of what a wrap is and
whether it is profitable.
2. Wrapping A Property
For Profit - What is a Wrap Around
Mortgage?
Although wrap
around (Wraps) have existed since the 1970’s, it is very
common for people to misunderstand or confuse it with
second mortgages, charges over land and even further
mortgages and charges over property. It will be in your interest to
have your solicitor assist you unravel the mystery behind
this concept. For such a valid question, a good
solicitor will give you more than the text book
answer.
3. Wrapping A Property
For Profit - As the Seller/Lender,
will I be protected?
The security of
the lenders’ interest in the mortgage property is a very
critical part of the transaction. It is therefore
important to ensure that your solicitor explains to you
the nifty gritty of the measures that he/she has put in
the wrap around agreement to cover, not only the figures,
but your overall interest. These will include the validity
of the whole transaction and possibility of security
realization.
4. Wrapping A Property
For Profit - As the Buyer, will I be
Protected?
Just like the
seller, it is in the interest of the buyer to know
whether there are any protection mechanisms placed in the
agreement to protect them. Your solicitor should be able to
explain to you whether you have a chance of exiting the
arrangement with minimal loss.
5.
Wrapping A Property For
Profit - What are the Interest
Charges?
Interest, in a
wrap around, goes to the core of the
transaction. Sellers, who may sometimes be
lenders, base the whole idea of “wrapping” the already
existing loan on the assumption that there will be gain
through higher sale value and higher interests
rates. It is
critical to discuss this question with your
solicitor.
6.
Wrapping A Property For
Profit - What is the Repayment
Period?
As a buyer, a
repayment plan for the money advanced should be of much
importance. You
do not want to have your new property foreclosed just
because you did not understand the repayment period or
the terms of payment. Competent solicitors should be
able to guide you through the set terms of payment and
advice on the consequence of default before you sign wrap
around agreements.
7.
Wrapping A Property For
Profit - What is the Effect of
Legislation on the First
Mortgagee?
In most wrap
around agreements, the first mortgagor may be unwilling
to accept the arrangement entered into between the seller
and the buyer. It is appropriate for you to seek
as much information and guidance on this
matter.
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