An All Inclusive Trust Deed is a new deed of trust that includes the balance due on the existing note plus new funds advanced; this is sometimes called a wrap-around mortgage.
A wrap-around mortgage (also known as a “wrap”), is a type of secondary financing for property purchases. The seller extends a junior mortgage to the buyer; this mortgage wraps around and exists in addition to all superior mortgages already secured by the property.
Under a wrap, a seller accepts a secured promissory note (this is the AITD) from the buyer for the amount due on the underlying mortgage plus an amount up to the remaining purchase money balance.
The new purchaser makes monthly payments to the seller, who is then responsible for making the payments to the underlying mortgagee(s). Should the new purchaser default on those payments, the seller then has the right of foreclosure on the property.
Due on Sale
The seller takes the greatest risk on a wrap-around mortgage. Most mortgages have a “due on sale” clause. If the house is sold, the entire mortgage balance is due. If the seller cannot pay that amount (outright or by borrowing), the lender could foreclose on the home. The due on sale clause is not always enforced, but sellers must be aware of it.
The seller also takes on all of the risk of a traditional lender in a wraparound mortgage. If the borrower doesn’t pay, the seller bears all the costs associated with enforcing the loan or foreclosing on the property.
If the borrower doesn’t pay, the seller is also at risk of being unable to pay his mortgage and could face foreclosure, even though the borrower is at fault by not paying. The wrap-around is a second mortgage; if the seller cannot pay the first mortgage, even when it is the home buyers fault, the original mortgage lender has the first claim and can foreclose on the original home owner.
The buyer faces default risk as well. For example, if a buyer consistently makes monthly payments, but the seller is not paying the first mortgage in their turn, the original lender can foreclose on the home.
Example of a wrap-around mortgage secured by an AITD
The seller (who holds the original mortgage) sells his home with the existing first mortgage in place and a second mortgage which he “carries back” from the buyer. The mortgage he takes from the buyer is for the amount of the first mortgage plus a negotiated amount less than or up to the sales price, minus any down payment and closing costs. The monthly payments are made by the buyer to the seller, who then
continues to pay the first mortgage with the proceeds. When the buyer either sells or refinances the property, all mortgages are paid off in full, with the seller entitled to the difference in the payoff of the wrap and any underlying loan payoffs.
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