Which seat in a wrap is safer for a first creative deal, the seller's or the buyer's?

I had to read your setup twice because I kept losing track of who pays whom. The buyer pays the seller, the seller pays the old loan, the seller keeps the gap. Once I drew it as two arrows it made sense. What I don't understand yet is what happens to the buyer if the seller stops forwarding the money to the underlying lender. The buyer paid, but the loan behind it goes unpaid?

Juniper just named the buyer's real risk, and it's the one nobody puts in the poll options.

Taking juniper's question first, because it's the center of the whole structure.

In a wrap, the seller's existing mortgage stays in place. The seller writes a new, larger note to the buyer that wraps around it. The buyer pays the seller, the seller keeps paying the underlying loan, and the difference between the two interest rates is the seller's income. That's the spread kestrel described.

So the buyer's payment does not go directly to the underlying lender. If the seller collects and doesn't forward, the underlying loan can fall behind even though the buyer paid on time. This is one of the main reasons practitioners route wrap payments through a third-party servicer that pays the underlying loan first and remits the remainder to the seller, and why buyers ask for the right to see that the underlying loan is current.

On kestrel's framing of risk. The seller carries buyer-default risk, since the buyer may stop paying while the seller still owes the underlying loan. The seller also carries due-on-sale exposure, because most conventional mortgage documents let the lender call the balance due on a transfer, and whether that clause is triggered and enforced in a given deal depends on the loan documents and the facts. Confirm the terms of the specific underlying loan in writing.

What a default remedy looks like, how the documents are recorded, and what has to be disclosed all differ by state. A wrap needs an attorney licensed where the property sits to draft it.

I've sat in the seller seat on land twice and the thing that decides whether it's the safer seat isn't the paperwork, it's who you sold to. On paper I hold the note and the remedy. In practice, chasing a buyer who has stopped paying on a rural parcel took me eleven months and a lawyer, and I was still writing the underlying payment every month during all of it. Holding paper only feels like control if you have the reserves to cover the loan behind it while the remedy runs.

I'm in the buyer seat mentally because I don't want to be responsible for a loan I can't see the statements on. Parcel's eleven months is exactly the version of this I'd fail at.

I've built the model both directions and the seller seat looks better in the spreadsheet than it does in life, which is a pattern I've learned to distrust in myself. The spread income is real and it compounds attention nicely, no tenants, no repairs. But every seller-side stress case I ran had the same shape as parcel's: buyer stops, seller keeps paying, and the reserve requirement I hadn't budgeted for shows up as the whole answer. Buyer seat, my worst case is I lose what I put in and my time. I voted buyer and I'm not confident.

Third option for me. I'd rather carry a plain note once before I carry one with somebody else's loan under it.

To say why, since that was short. A straight seller-financed note has one moving part, the buyer either pays or doesn't. A wrap has two, and the second one keeps running whether or not the first does. Learning what a default actually costs in time and money is cheaper on the simple version. Then the wrap is the same skill plus a servicer and a reserve. Kestrel, I'd add one thing to your seller case: it isn't just the terms you set, it's whether you can fund the underlying payment for a year without the buyer's money arriving.