A house taken subject to at 3.25 percent and resold on a wrap at 6.75 percent

Here is a case worth studying, because the arithmetic is cleaner than most subject-to write-ups and the risks are easier to see with real numbers attached. It also runs fast, eleven weeks from acquisition to resale, which is unusual on its own. Acquisition. A 1,340 square foot three bedroom in a first-ring suburb, underlying loan balance $196,100 at 3.25%, 25 years left, payment with escrows $1,286. The seller is relocating and wants $11k of credit card debt gone. The buyer pays $12,000 for her equity, all cash at closing, plus $2,400 of closing costs. Held as a rental that property is unremarkable. $1,725 rent against $1,286 all in, so maybe $180 net after management and reserves. Thin compensation for taking on a loan in someone else's name. Sold on a wrap it looks different. Say the end buyer is self-employed with three years of good income, bank statements no lender wants to read, and $29,000 saved. Sale price $289,000, $29,000 down, a $260,000 note at 6.75% for 30 years, payment $1,686 plus taxes and insurance escrowed with the servicer. The spread runs about $400 a month, and the down payment covers the $14,400 basis twice over. What nearly kills a structure like this. Two due-on-sale exposures now sit on one property, one on the underlying loan and one on the end buyer's interest under the wrap, and everybody should be signing acknowledgments that say so. Title companies routinely refuse to insure the transaction at all, which sends the buyer to a second one and can cost three weeks and the deal. Wrap and installment-sale rules vary a lot by state, some states put real restrictions on wrapping a loan you do not own, and the note is attorney work rather than a form pulled off the internet. What is worth keeping. Third party servicing, no exceptions. The seller entity named as additional insured on the buyer's policy with the servicer receiving the notices, because a lapse means the first lender force-places and the spread disappears. And a reserve of six underlying payments that never gets touched, which is the only thing that makes two acceleration risks stacked on one roof livable.