The underlying lender sent a default notice on a wrap where the buyer had paid every payment on time
A case to learn from, because the failure point here is one almost nobody prices in when they write the note. The property had a conventional underlying at 4.1 percent, the seller wrapped it at 6.5, the buyer paid 11 months without a single late payment, and the underlying lender still sent a default notice. The due on sale clause had been triggered at closing, the lender found out through a routine title search on an adjacent parcel, and they accelerated. The buyer's payments were current. The wrap note was current. None of that mattered to the underlying lender, because the default was not a payment default, it was a transfer default. The wrap seller had no cure available other than paying off the underlying in full or convincing the lender to waive the clause, and lenders almost never waive it once they have issued the notice formally. The buyer lost the property, got their equity credited against a negotiated payoff to stop foreclosure, and walked away with less than half of what they had put in. The seller was not in bad faith, they had just structured the whole instrument as though the due on sale clause was a theoretical risk rather than a live one. The document the deal did not have was a written disclosure, signed by the buyer before closing, explaining what acceleration looks like in plain terms and acknowledging that the buyer understood it could happen even if every payment was made on time. That one page does not stop the lender from accelerating, but it changes what the buyer can argue afterward and it forces both sides to have the real conversation before the ink is dry. When you wrote your last wrap note or evaluated one as a buyer, did the disclosure address acceleration as a payment-independent event, or did it treat due on sale only as a consequence of the buyer defaulting?
