Diana Hill
Online Trading Academy
What is the most important thing in ANY real estate market – Getting the Deal Done! There is a financing technique known as “All Inclusive Deed of Trust” (AIDT), also called a Wrap Around Loan that can be just what you need to get the deal done.
To put it simply 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. DISCLOSURE – THE LEGALITY OF THIS IS DIFFERS BY STATE AND THE PREEXISTING LOAN.
Example: I’m selling a property for a total of $300,000, and there is an existing mortgage on the property that has a balance of $250,000, with an interest rate of 6.5 percent. I’ve found a buyer who wants the property and is willing to put $30,000 down, but the buyer had a short sale three years ago and is having a hard time qualifying for a loan with a conventional lender. The buyer now has a good job, has proven they are credit worthy and can afford the property. So, as the seller, I decide to sell to them and use an AIDT to facilitate the financing. I create the AIDT for $270,000, with an interest rate of 7.5 percent. This means 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 one percent on the $250,000.
There are many benefits of an AIDT. It creates flexibility and the ability to negotiate all of the terms of the deal, including the payment, interest rate, maturity date, late charges, and 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.
Here are some of the steps to follow when creating an All Inclusive Deed of Trust:
- Make sure you have all the relevant information regarding the existing 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 by the original loan except for the interest rate.
- Manage the rest of the transaction as though it was a standard loan; do a credit check, verify funds, have references and so forth.
- Use a servicing company to accept the payments from the buyer and 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 you’ll know the marketability of the note if you need to sell it.
An AITD can also be a very powerful tool when marketing the property. In today’s environment there may be buyers who will be worthy to own property but who may have been through a difficult time and will need a little help getting back into the market.
This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms
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Editors’ Picks
EUR/USD climbs to two-week highs beyond 1.1900
EUR/USD is keeping its foot on the gas at the start of the week, reclaiming the 1.1900 barrier and above on Monday. The US Dollar remains on the back foot, with traders reluctant to step in ahead of Wednesday’s key January jobs report, allowing the pair to extend its upward grind for now.
USD/JPY recedes to multi-day lows near 155.50
USD/JPY is pulling back sharply at the start of the week, slipping back toward the 155.50 area as speculation mounts that authorities could step in to rein in further Yen weakness. That narrative gained traction after PM S. Takaichi secured a landslide victory in Sunday’s election, stoking expectations of a tougher line in defence of the domestic currency.
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