Wraparound mortgages are particularly problematic in New York estates. You should discuss the tax and legal implications of a real estate wrap around mortgage with your New York probate and estate tax attorney to determine if this strategy is beneficial to you. If you do not itemize your tax deductions on your federal tax return, the mortgage interest you are paying may not benefit you in tax savings. It is important to keep in mind that the interest you receive from a private mortgage that you financed is taxable to you and cannot be offset by the interest you are still paying on your existing mortgage. The tax consequences to the seller are also an issue in a New York wrap around mortgage transaction. Meanwhile, the bank is sure to foreclose on the property if mortgage payments are not made. NYC’s housing laws favor people who occupy property and foreclosure is difficult in New York City, so it will take years for the unfortunate seller to get the property back if the deal goes sour, with virtually no recourse for the missed mortgage payments. ![]() There is too much of an opportunity for the buyer to not make payments. I am not a big fan of wraparound mortgages for New York estates. The seller uses the mortgage payment received from the buyer to pay the seller’s existing mortgage payment and keeps the excess amount. ![]() The deal is structured so that the buyer pays the seller a monthly mortgage payment over a set period of time which is more than the seller’s existing mortgage payment. The seller must still pay their existing mortgage payment on their New York property because the buyer has not yet paid the seller in full yet for the home. One way to look at it – the seller is lending the house as opposed to lending money, except they are not renting the house but transferring it completely to the buyer. The seller, in turn, gets to sell the home and gets the benefit of collecting interest on the debt they are essentially lending to the buyer. ![]() Typically, the rate on a wraparound mortgage is higher than on a mortgage obtained from a bank. This works well for a buyer who is unable to qualify for traditional financing from a financial institution. With a wraparound mortgage, the owner of property sells their property to a buyer and also acts as the lender by providing seller financing to the buyer. In a wraparound mortgage, the seller gets the money in installments, using every month’s installment to pay the existing mortgage and keeping the rest of the payment. In a regular mortgage, the person who sells the house gets the money upfront, uses it to pay out an existing mortgage and keeps the rest.
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