Can I keep my house-with wrap around mortgage??

[Nightowl805]

I live here in California and am trying to desperately get into a house before filing BK. I have found a seller who is willing to do a wrap around mortgage (AITD) with 100% financing and me just paying for closing cost. This will easily put me under 50k equity which as I understand would make my home exempt. Will the BK courts here in California recognize that as a legitimate mortgage with me as the owner. We would have an escrow account with monthly statements and a recorded deed.

I also have huge Income Tax issues...if anyone knows, will the IRS also except this??

Thanks in advance

Ken

BTW, I have been honest with the seller about everything and do not want to jeopardize his interest in any way...just need a fresh start with a legitimate tax write-off (mortgage interest) and to raise by allowed spending to the BK courts.

[HHM]

For those that don't know, an AITD is an "all inclusive trust deed". In a nut shell, it is a form of seller financing. The buyer gives the seller a down payment of some kind (in this case, it looks like that will simply be the closing costs, if any) and they agree on a monthly payment. The buyer pays the monthly payment to the seller who in turn pays the seller's mortgage lender (that is correct, the seller does not pay off their mortgage...the All inclusive aspect of the AITD is that all the mortgages get thrown on this trust deed).

With an AITD, you need to make sure that the seller's mortgage lender does not have a due on sale clause...these AITD's are generally considered a transfer and can trigger due on sale clauses.

Typically, this type of financing is used AFTER someone has filed BK and has trashed credit. Also, these type of deals tend to be (and should be) short-term, 1-3 years, so you need to be able to re-fi out of it at some point, but if you are going to file BK, that can be a problem. Finally, as the buyer, you have little recourse if the seller defaults on the payments to the mortgage note holder.

However, on the surface, there should be no problem with the BK and because this is a purchase, there should not be any IRS consequences. Your main problem may come from the sellers original lender.

[I want out]

[I live here in California and am trying to desperately get into a house before filing BK. ]

Why?

Do you like to lose money?

[HHM]

[I live here in California and am trying to desperately get into a house before filing BK. ]

Why?

Do you like to lose money?

LOL, good point.

[CindyLou]

you are puting your destiny in another's hands! If the seller defaults you are in trouble.

[dantan]

This thread is a yr old I know, I've been researching the issue myself.
I'm sure this issue has been resloved-but I figured I would pass along what I have gleaned from my time perusing the interweb.

Wrap-Around mortgages create potential issues for both buyer and seller.
If you fail to pay the seller- they are SOL or have to pay the bank themselves for a home they don't live in. And if they fail to pass along the payment to the bank- then you are SOL- despite being a good dooby and paying on time.
Be very wary of wrap-arounds in this market. People that can't afford their homes and are close to foreclosing may put you in a wrap-around despite not having an assumable mortgage. They basically vacate their home, pocket your payment for a few months and ba bam you are on the street and you never missed a payment.
2 of the better articles I found explaining the pro's and con's

http://www.mtgprofessor.com/a%20-%20wrap-around%20mortgages/what_is_a_wrap-around_mortgage.htm

http://www.bankapedia.com/mortgage-encyclopedia/residential-mortgage-terms/469-wraparound-mortgage