The all-inclusive trust deed (AITD) and the note is a debt instrument and security device for the retrospective sale of mortgaged real estate. It gives agents, sellers and buyers the flexibility to finance the balance of a sale price remaining to be paid after payment of a deposit. [See RPI Form 421]
For a buyer with a deposit, the AITD postponed by a seller, it is all the financing necessary for the acquisition of the mortgaged property sought. [See RPI e-book Creating Carryback Financing Chapter 13]
The amount of the AITD capital balance includes:
- the unpaid balance on the existing mortgage that will remain registered, called the wrapped mortgage Where underlying mortgage; and
- the seller’s equity in the property remaining to be paid after the purchaser’s down payment.
With an AITD, the buyer makes monthly payments to the seller as negotiated in the all-inclusive note. Likewise, the seller continues to make monthly payments to the mortgage holder on the underlying mortgage.
The seller, buyer and holder of the underlying mortgage all benefit from the carryback agreement.
For the benefit of seller, AITD:
- allows a better yield than that usually negotiated for the rate of the note on a second ordinary mortgage, a financial advantage generated by the increased interest rate functionality available through the use of an all-inclusive note;
- eliminates risk of loss due to a default on the underlying mortgage since the seller remains responsible for its payment;
- defers income tax for a higher percentage of the profit of the transaction since a lump sum ticket increases the percentage of profit allocated to the principal in the deferral mortgage;
- bear the price sought after by the seller by providing non-institutional financing; and
- provides for the foreclosure of a trustee buyer’s default, unlike other wrap-around security devices, such as land sales contracts and lease option contracts that require a judicial foreclosure (unless they contain a power of sale provision).
For the benefit of Buyer, AITD offers more simplicity and flexibility than conventional or government-insured mortgages, since:
- the interest rate and payment schedules are fully negotiable and not tied to the rigid standards of the secondary money market;
- the deferral seller is less concerned by solvency and income ratios that institutional lenders standardized due to the seller’s knowledge of the asset and a more personal relationship with the buyer;
- the buyer makes payments on a single debt instrument, the all inclusive note; and
- no third party lender fees are required, such as points, garbage charges, private mortgage insurance (PMI), pick-up fees, or an American Land Title Association (ALTA) title insurance policy from a separate lender .
AITD secured by a trust deed
The all inclusive note is used either with the equity payment Where full payment varieties of AITD addenda attached to a regular trust deed. [See RPI Form 421, 442 and 443]
The AITD is made up of provisions from a regular payment note with interest included. The note is amended with additional provisions that disclose:
- that the amount of the flat-rate ticket includes the capital balance on one or more underlying mortgages; and
- the payment of the underlying mortgage (s) remains the responsibility of the carry forward seller.
A transaction agent or escrow agent uses the All-inclusive promissory note secured by a trust deed published by Real Estate Publications, Inc. (RPI) when a seller defers a note that includes the remaining principal on an existing mortgage. It allows the seller to prove debt owed on terms providing for installment payments of principal and interest, with the deferral seller remaining responsible for payments on the existing mortgage. [See RPI Form 421]
The AITD secured by a trust deed contains:
- a promise to pay which sets out the payer’s promise to pay the debt according to the terms and provisions contained in the note, including the identity of the payee, the place of payment, the amount of the debt, the date of accruing interest (usually the date escrow closing) and the interest rate [See RPI Form 421 §1];
- installments to be paid in scheduled installments which consist of a payment schedule, a first payment date (generally 30 days after the start of interest, or the first day of the following month 30 days after the closing of the escrow), a date of the last payment, a form of payment and accrued interest [See RPI Form 421 §2];
- AITD provisions which consist of debt on the property, including first and second mortgages [See RPI Form 421 §3];
- a default layout which provides that the mortgage holder declares the total amount of the instrument due and immediately payable if the beneficiary has not paid a deposit on time [See RPI Form 421 §4];
- special provisions such as late fees, grace period or final payment / balloon notice [See RPI Form 421 §5];
- attorney fees which provide that the winning party in any dispute over the note to recover his attorney fees [See RPI Form 421 §6]; and
- security identification which indicates that the note is secured by a trust deed. [See RPI Form 421 §7]
The original trust deed is then converted to an AITD.
Related video: Repayment variations: progressive payment mortgage and all-inclusive trust deed
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The two variants of the AITD, the equity payment and the full payment, are differentiated by the amount of the reimbursement request the deferral seller can request the satisfaction of the all-inclusive note and retrocession of the AITD. [See RPI Form 442 and 443]
Each variety is documented by a different addendum which is attached to a regular trust deed, thus adapting the standard trust deed into an AITD.
The two types of AITD addenda contain different formulas for earnings amounts and foreclosure sale requests. In addition to their reimbursement formulas which appear in sections 7 and 8 of the form, the two AITD addenda contain the same information and provisions.
When attaching an AITD rider to a trust deed, the following statement must be included on the face of the trust deed: “The attached AITD rider forms part of this trust deed. “
Pay-by-equity or pay-in-full varieties
An escrow agent or agent uses the Addendum to the All-Inclusive Deed of Trust – Return of Equity form published by RPI when a seller of goods defers an AITD evidencing a principal debt which includes the balance owed on an existing mortgage and the negotiated reimbursement request is payment of the difference between the amount outstanding on the AITD note and the mortgage underlying. It allows the escrow agent or agent to prepare and attach the form as a referenced addendum to an ordinary trust deed. [See RPI Form 442]
The equity addendum for an AITD contains:
- existing funding disclosures that identify existing charges on the property, the principal amounts of which are included in the all-inclusive note amount [See RPI Form 442 §1];
- pounds which are seized when paid to the seller by the buyer for property taxes and damage insurance. When a wrapped mortgage is foreclosed, the AITD is also foreclosed [See RPI Form 442 §2];
- collection of contracts, for the agent to check whether the seller has agreed with the buyer to place the mortgage on a collection contract with a third party [See RPI Form 442 §3];
- seller’s default / buyer’s remedy which indicates when the seller defaults on the enveloped underlying charges, the buyer can remedy the default and make payments directly on the overdue underlying charge [See RPI Form 442 §4];
- buyer’s default / seller’s remedy which states that when the buyer does not make payments on the AITD, the seller is no longer required to make payments on the underlying enveloped charges unless the AITD is reinstated [See RPI Form 442 §5];
- a penalty for early repayment which sets out the reimbursement of an underlying charge caused by the purchaser or made at the request of the purchaser incurring a prepayment penalty imposes the responsibility for the payment of the penalty on the purchaser [See RPI Form 442 §6];
- a foreclosure offer, AITD equity payment which indicates that the seller’s claim on the AITD foreclosure will be the amount of their equity in the AITD. The AITD credit is the difference between the remaining balance on an all-inclusive ticket and the remaining balance (s) on the underlying charges. The buyer during the foreclosure sale takes the act of the trustee subject to the underlying charges [See RPI Form 442 §7]; and
- a payment request, a payment by AITD equity which sets out the reimbursement request for the retrocession of the AITD. The reimbursement request is the difference between the amounts remaining unpaid on the flat-rate ticket and the underlying charges enveloped. [See RPI Form 442 §8]
An escrow agent or agent uses the All Inclusive Deed of Trust Addendum – Full Payment form published by RPI when the seller of a property defers an AITD evidencing a principal indebtedness which includes the balance owed on an existing mortgage and the negotiated repayment demand is payment of all of the remaining debt on the AITD note. It allows the escrow agent or agent to prepare it and attach it as an addendum referenced to an ordinary trust deed. [See RPI Form 443]
The full payment addendum for an AITD contains much of the same terms as the equity payment addendum, with the exception of:
- a foreclosure offer, full payment AITD which states on foreclosure under the AITD, the seller will demand and bid the entire balance of the all-inclusive note. Along with the foreclosure sale, the seller will satisfy and obtain a retrocession of the underlying charge, unless the seller is the successful purchaser and credits himself with the amount of the underlying mortgage that he is assuming. [See RPI Form 443 §7]
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