As mortgage interest rates increase, we are seeing some creative transactions such as seller paying buy down rates for the buyer, buyers assuming seller's mortgage (if current mortgage allows) and subject to financing aka wrap mortgage.
A real estate lawyer, explains in the attached image why he advices against wrap mortgages. To explain, a wrap mortgage is when the buyer makes the payments in behalf of the seller without assuming the mortgage, which means the mortgage will remain under the sellers name though the deed has been transferred to the buyer. The risk is that the buyer may stop making payments without the sellers knowledge, hence, the property may go to foreclosure risking the sellers credit. In addition, the mortgage company may accelerate the balance of the mortgage once they find out a transfer of ownership occured. A brokerage I worked for will not allow wrap mortgages because of the risk of liabilities. Most of the time, the sellers don't understand exactly what they're getting into though a lawyer is needed in writing the contract in this type of transaction.
