Chris Prefontaine and Jessica explain mirror wraps, a second-lien mortgage tool for creative real estate deals. The structure lets you pass rising taxes and mortgage payments to a tenant-buyer through a written agreement, while protecting the original seller if the buyer defaults. Monthly payments typically run around $2,100 including the tax component.
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Taxes eventually go up, right? That's what they do. A mortgage bill goes up and we didn't get the tax notice yet. We send an immediate letter to the tenant buyer because in their agreement they have to pay increase in taxes. So when you're doing a sub-to, a lot of sub-tos are like, I'm out. They don't care. They're not going to go buy. This person may in the future. The way to help them go get a loan is Jessica would do what's called a mirror wrap. If you want to get an explanation of that, you can go on the VA website. They explain it.
There is a way to deal with it.
Oh yeah.
Yeah. Okay.
Yep. It's a member wrap mortgage so that they can prove to the bank that not only is Jessica making the payments, but if she defaults, they get their house back and they're okay. Secondly, if he's moving in with his new girlfriend, new wife, and 3 years from now he asks for something to help him go get a loan, she also has 3 years of seasoning. Right. She paid this thing for 3 years. No, no, not too many banks are going to argue with that.
So a buyer or a seller can come back to you at some point if they have a situation and you are able to help them.
Absolutely. You can do it upfront and/or later. Yep.
Terrific. Thank you.
You bet. I don't think I've ever had a seller come back, but I did have a seller who was a schoolteacher who got a divorce. That deal I told you about, the lead paint yesterday, that Zach did.
Yeah.
Who said, I do want to go buy. So right up front, we had our attorney give him a mirror wrap. So he had that instrument in his hand. I never heard from him. I don't know if he bought, but we set him up to buy. Mirror wrap is a promise that you're paying their mortgage. Is that basically what it is? Yeah. You're giving them, you're giving them a mortgage to protect. Because if, if Jessica doesn't do that and Jessica goes to Tahiti or closes shop, Marcel is naked. They can't get their house back and the loan's in their name. So what do these folks have? What do they have to protect them that she's paying that? Depends if she does that mirror wrap or not. Depends if this guy wants it. I don't bring it up if they don't ask.
Yes.
Let's say I'm buying.
Okay.
Jessica, did he say he's buying or he wants any help with that at the beginning or is he fine?
He's fine. They already have another house.
Got him.
Okay. Everybody doesn't get a divorce. You should be good. Yeah.
So that mirror wrap makes the seller go on title or on record as the second lien. And so that's, that's what I have been proposing to some sellers. Yesterday when I mentioned deed in lieu of foreclosure, I actually was referring to like the upward performance clause. I just thought about that. So that's kind of like the same thing as a mirror wrap, right? Where if you don't perform on that second, on that wrap, that seller gets the deed.
You accomplish it, same thing.
But several attorneys in the state said that that's not enforceable because there's a first lien holder there. That's the bank.
Uh, the instrument you were talking about yesterday, right?
Yeah.
Yeah. Some states don't even allow it. It's illegal. Arizona, you can't even do that. You can't do like a default agreement for a deed in lieu. Yeah. Can't do it. So just check all these nuances. Check with attorneys that know creative real estate. That's all. Um, are we good on the numbers? Go ahead.
Yeah. I kind of lost you on the $190 for the monthly, you know, You know, the payday 2.
Yeah.
Uh, is that coming to the spread of, what was it?
$1,906 to $1,950 plus the $147 that they add the buyer, meaning to tack on the taxes.
Yeah. Conceptually, I'm trying to, is this taxes?
So you're missing the $2,100. But the tax is already built into this.
It's already built in.
The marketing tactic is what this is.
Oh, it's built in. So then that's added. So the, yeah, the buyer is also paying Adding that onto the 1950s.
Yeah, so they do lease. They're not calling it taxes in the end.
Okay.
They're calling it taxes for the education of the buyer because remember, we're trying to educate buyers to be buyer ready.
Yeah, yeah, yeah, yeah.
You know, they go to a bank.
That's what the bank's going to pay taxes plus your rent, which is your principal interest.
Yeah, here's your taxes and then you need insurance. They got to educate them, right?
Yeah, yeah, yeah.
We're doing that here the same way, but then it's going to be called a lease. Why? That they have a due default, the 2 to 10% default. You can't go collect that in court. You have to, you can go collect the lease if you evict him, but you're not going to collect taxes.
Yeah.
And then yeah, eviction laws come into play.
Yeah.
Yeah. You're 100%. If they default, you're back into eviction law. So the monthly payment, the monthly payment then is $2,100 that the buyer is paying. Correct. That's what Jessica said.
Okay. Got it.
Yep. Okay, good.
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How much work do you do upfront on taxes? Like if it's a— if they're selling, then they're going to— the homestead is going to go away. Do you calculate 3 years taking away the homestead deduction and then allow for the percentage that it's allowed to rise every year? Or do you just Not get into those— that much minutia.
No, no, no.
This is a good question. You have in your courses in the academy, there's a letter that you will send because this will happen to you. Taxes will go up. To Dana's question. Yeah, right. Even if there's no homestead issue, taxes eventually go up, right? That's what they do.
Utilities go up.
So we send a letter. I get a mortgage bill goes up. We're paying— oh, went up and we didn't get the tax notice yet. We send an immediate letter to the tenant buyer because in their agreement they have to pay increase in taxes. If it's $40 a month or whatever it is, as it happens, they're paying the increase. Yep. Passed on to the buyer. That's built into your agreement.
Okay.
Yep. Good questions.
Okay.
Everybody have this, what they need, picture or whatever? We good? Yeah. Okay. Awesome. Jessica, thank you. Thank you. Thank you.
Y'all have a good day.
You can hang out as always, but I didn't want to keep you. All right, Jess. Great job.
