Your rights with a wraparound mortgage contract depend on if you took ownership of the property and if the wraparound mortgage was filed with your county recorder office.
With a properly structured wraparound mortgage the borrower / property buyer receives a grant deed in her or his name from the property seller. The grant deed legally documents the borrower's ownership of the property. The wraparound mortgage and property ownership transfer should also be recorded by your county recorder's office.
If you legally own the property through a grant deed and the transaction was recorded properly, then you should have certain rights according to federal and state real estate laws that offer you some protection in the event you cannot repay or refinance the wraparound mortgage. Whether or not you lose your down payment depends on how the wraparound mortgage was structured and the real estate laws for your state.
Real estate laws vary by state so we recommend that you contact your state housing commission or department of real estate to understand your legal rights based on your specific situation. You may also want to contact your state attorney general’s office if you have additional legal questions or believe the property seller acted in bad faith.
You can also take the matter up with the Consumer Financial Protection Bureau (CFPB) but that is a national agency so they may not be familiar with the specific laws for your state. I have provided a link to the CFPB website below.
CFPB Contact Information
You should also consider retaining a qualified real estate attorney who can provide additional assistance and legal guidance. A lawyer with experience in this area can represent your interests with the property seller and the organizations I outlined above.
Finally, the best way to handle a wraparound mortgage is to refinance and eliminate it with another loan. We also recommend that you contact multiple lenders in the table below to understand what is possible based on your individual situation.