An all-inclusive trust deed consolidates one or more mortgages into one document, preserving the individual security interests of each lender. The borrower makes only one payment to a title company instead of paying each lender separately. The title company then issues the required payments to the lenders. The title company typically charges a small processing fee for handling these payments.
All-inclusive trust deeds are often known as wrap-around mortgages because they "wrap" a property buyer's new loan around the seller's existing one. Instead of taking out a loan for the entire purchase price, the buyer will get a loan for the difference between the sales price and the remaining balance on the seller's loan. The buyer also takes over the payments on the seller's loan.
An all-inclusive trust deed is more convenient for the buyer because he only has to make one mortgage payment each month. If the loan also includes an escrow account, the buyer can track his mortgage payments, property taxes and insurance premiums all on one statement.
Advantages to Borrowers
The buyer benefits from this arrangement in several ways. He is able to apply for a smaller loan, which the bank is more likely to approve than a loan for the entire purchase price. If interest rates have gone up since the seller took out the original loan, it may be better for the buyer to assume the seller's loan instead of applying for a new one. The seller's credit may also be better than the buyer's, allowing the buyer to access more favorable loan terms with an all-inclusive trust deed than he would be able to get on his own.
Advantages to Lenders
Combining security interests with an all-inclusive trust deed reduces the risk to all lenders. No individual lender can miss payments or foreclose on the property without the other's knowledge.
All parties involved in the all-inclusive trust deed run the risk of the title company not processing the payments correctly or going out of business before making the appropriate disbursements. If one or more of the loans includes a property tax or insurance escrow account, the title company's failure to make payments on time could lead to a lapse in insurance coverage or tax liens on the property. Unless the seller's lender agrees to substitute the buyer as the primary borrower, the seller remains liable for payments on the first mortgage, and could be saddled with a large remaining balance if the buyer defaults.
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