A home loan in Utah is secured by a deed of trust. The buyer will agree to pay on the promissory note; the trust deed will put the lender in a position to take the property if the buyer is unable to keep the agreement. Commonly with an AITD, we deal with people that have poor credit and are unable to secure the loan. An All-Inclusive Trust Deed (AITD) combines multiple loans into a single security. The AITD is often used in seller-financing situations when there is already a mortgage in place on the property.
All-Inclusive Trust Deeds are commonly referred to as wrap mortgages because they will wrap an original loan together with the second mortgage. Under the AITD, the buyer will make one large payment and the recipient of the payment (usually the seller or a servicer) will split the payment up. Part of the payment will go to the lender on the original mortgage and the other part of the payment will be delivered to the seller as payment on the second mortgage.
The All-Inclusive Trust Deed will preserve the mortgage the property already has. If the mortgage has terms that aren’t currently available in the market, the AITD offers the benefit of holding this value. Older loans with a higher portion of the payment to principal than to interest are particularly valuable to buyers as it allows them to build equity quickly.
Benefits of AITDs
There are several benefits of AITDs as it will save the buyer from needing to apply for a traditional mortgage. An AITD will save time and money, and allows the seller to sell their home to people that may be unable to qualify for lending. For a seller, the AITD gives them a larger buyer pool to work with to sell their home. An AITD offers extreme flexibility, which is beneficial if the original loan has a low interest rate.
There are some risks with an AITD, which Security Title will clearly explain to you if you are considering this option. The main risk is the first mortgage carries a “Due on Sale” clause. The clause states that if you are to sell your property, the mortgage is due on this date. The other risk is the possibility that the buyer will not be able to pay the loan as they will default on payments, so you are not able to get your second mortgage payment, and you are still responsible for the first mortgage payment, which means you are liable for foreclosure on the first mortgage.
As AITDs can be confusing, it is best to contact our Clearfield title office, 801-825-1313.
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