Home  ›  Colorado installment land contract  ›  Wraparound Sale in Colorado

Tags: , ,

Wraparound Sale in Colorado

This post discusses the wraparound sale in Colorado.

A wraparound or “wrap” is a sale of property whereby the underlying loan is not paid off, but rather paid on a continuing basis by the seller.  The buyer makes payments to the seller on a note or contract (land contract aka “contract for deed).  A wrap can be done in a number of ways in Colorado:

1. Lease with Option. In this scenario, the seller is a landlord, and the tenant has an option to purchase.  This is technically not a “sale” for tax purposes, and the buyer cannot deduct his lease payments.

2. All Inclusive Trust Deed (AITD).  An AITD is where title is transferred to the buyer, and the buyer makes payments to the seller, who continues to make payments on his underlying loan.  The seller takes a lien (mortgage or “deed of trust”) on the property in a position secondary to the underlying lender.  If the buyer defaults, the seller must go through a Public Trustee foreclosure in Colorado.

3. Installment Land Contract or “Contract for Deed”.  Under a land contract, the title is NOT transferred to the buyer until the balance of the contract is paid by the buyer.  The payment structure is the same as an AITD, whereby the buyer pays the seller, and the seller pays the underlying loan.  This is a “sale” for tax purposes, and the buyer CAN deduct the interest payments.  On default, the law in Colorado is not clear.  Theoretically, a seller can evict the buyer who defaults, but if the buyer fights the seller in Court, the Judge may rule that the seller may have to foreclose (judicial foreclosure) to get the property back.  Usually in practice the buyer does not show up in court and the eviction goes smoothly, but the risk is there for the seller.


Comments are closed.

Help us improve the wiki Send Your Comments