The focus of this article will be on a financing technique known as All Inclusive Deed of Trust (AIDT), also called a Wrap Around Loan.

Simply said, an AIDT takes a preexisting loan and absorbs it into a new loan. The new loan is made by the seller of the property to the new owner.

For example, let's say I'm selling my property for a total of $300,000, and there is an existing mortgage on the property that still has a balance of $250,000, with an interest rate of 6.5 percent. I've found some buyers who want the property and are willing to put $30,000 down, but the buyers have some issues with their credit and can't easily qualify for a new loan. They had a streak of bad luck in the past but they now have good jobs, have proven they are credit worthy and can afford the property. So as the seller, I decide to sell them the property and use an All Inclusive Deed of Trust to facilitate the financing. I create the AIDT for $270,000, with an interest rate of 7.5 percent. This means that the AIDT is wrapped around the existing mortgage of $250,000. The buyer now gives me the $30,000 cash down payment and makes loan payments to me and I continue to make the payments to the bank on the $250,000 mortgage. I'm now making 7.5 percent on the $20,000 and 1 percent on the $250,000.

There are many benefits of an All Inclusive Deed of Trust. It creates flexibility and the ability to negotiate all of the terms of the deal, including the payment amount, the rates of interest, the maturity date, any late charges, and the prepayment penalty.

If the original mortgage includes a "due on sale clause," then the creation of an AIDT will require both legal and tax counsel in order to create a legal and practical AIDT.

You may ask why not just offer to carry a second trust deed for $20,000 and have the buyer get a loan of $250,000. Well, there are a couple of reasons:

1. I wouldn't be able to sell the property to this buyer. 

2. An AIDT allows me to hold the note in 1st position instead of 2nd position; that's the upside. The downside is that with an AIDT, I'm still responsible for the collection of the payments from the buyer as well as making the payments on the original loan. If the buyer doesn't pay me, I'll still have to make the payments on the original loan; this protects my interest in the property and credit. 

3. An AIDT allows me to spread the capital gains tax on out over a period of time (the term of the note); the gains would otherwise be considered taxable in the year of the sale.

Here are some of the steps that you should follow when creating an All Inclusive Deed of Trust:

  • Make sure you have all the relevant information regarding the loan, such as the payments, the interest rate, the date of maturity, the balance of the loan, and any other additional terms of the loan. 

  • Execute an All Inclusive Deed of Trust in your favor with the same terms that are used in the original loan except for the interest rate.

  • Manage the rest of the transaction as though it was a standard loan. 

  • Use a servicing company to accept the payments from the buyer and to pay the original loan. In this way, you won't be personally involved. 

  • Also, consider having a note buyer review the terms of the note so that you'll know what its marketability would be if you needed to sell it.

All Inclusive Deeds of Trust allow for a great deal more flexibility and options when it comes to buying and selling properties.

An AIDT can also be a very powerful tool when marketing the property. In today's environment, there will be more and more people who will be worthy to own property, but may have been through a difficult time and will need a little help getting back into the market.

I predict that we are going to see more creative ways of financing properties in the next few years.