All-Inclusive Trust Deed Addendum – Full Payoff – RPI Form 443

Flexible financing

The all-inclusive trust deed (AITD) and note is a debt instrument and security device for the carryback sale of mortgaged real estate. It provides agents, sellers and buyers with the flexibility needed to finance the balance of a sales price remaining to be paid after a down payment is made. [See RPI Form 421]

For a buyer with a down payment, the AITD carried back by a seller is all the financing needed to acquire the mortgaged real estate sought. [See RPI e-book Creating Carryback Financing Chapter 13]

The principal balance amount of the AITD includes:

• the unpaid balance on the existing mortgage which will remain of record, called the wrapped mortgage or underlying mortgage; and
• the seller’s equity in the property remaining to be paid after the buyer’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 underlying mortgage holder all mutually benefit from the carryback arrangement.

To benefit the seller, the AITD:

• allows a greater yield than is ordinarily negotiated for the note rate on a regular second mortgage, a financial advantage generated by the overriding interest rate feature available by use of an all-inclusive note;
• eliminates the risk of loss due to a default on the underlying mortgage since the seller remains responsible for its payment;
• defers profit tax liability for a greater percentage of the transaction’s profit since an all-inclusive note increases the percentage of profit allocated to the principal in the carryback mortgage;
• supports the price sought by the seller by providing non-institutional financing; and
• provides for a trustee’s foreclosure on the buyer’s default, unlike other wraparound security devices, such as land sales contracts and lease-option agreements which require a judicial foreclosure (unless they contain a power-of-sale provision).

To benefit the buyer, the AITD provides more simplicity and flexibility than conventional or government insured mortgages, since:

• the interest rate and payment schedules are fully negotiable and not tied to rigid secondary money market standards;
• the carryback seller is less concerned with creditworthiness and income ratios than standardized institutional lenders due to the seller’s knowledge of the property and a more personal relationship with the buyer;
• the buyer makes payments on only one debt obligation, the all-inclusive note; and
• no third-party lender fees are required, such as points, garbage fees, private mortgage insurance (PMI), assumption fees or a separate lender’s American Land Title Association (ALTA) title insurance policy.

The addenda

The two variations of the AITD, the equity payoff and the full payoff, are differentiated by the amount of the payoff demand the carryback seller may request for satisfaction of the all-inclusive note and reconveyance 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 differing formulas for the payoff amounts and foreclosure sale demands. Other than their payoff formulas which occur in Section 7 and 8 of the form, the two AITD addenda contain the same information and provisions.

When attaching an AITD addendum to a trust deed, the following statement is to be included on the face of the trust deed, “The attached AITD addendum is part of this Deed of Trust.”

The equity payoff or full payoff varieties

An agent or escrow officer uses the All-Inclusive Trust Deed Addendum – Equity Payoff form published by RPI when a seller of property carries back an AITD evidencing a principal debt which includes the balance owed on an existing mortgage and the payoff demand negotiated is payment of the difference between the amount remaining unpaid on the AITD note and the underlying mortgage. It allows the agent or escrow officer to prepare and attach the form as a referenced addendum to a regular trust deed. [See RPI Form 442]

The equity payoff addendum for an AITD contains:

• existing financing information to be provided which identify the existing encumbrances on the property, the principal amounts of which are included in the all-inclusive note amount [See RPI Form 442 §1];
• impounds which are entered when they will be paid to the seller by the buyer for property taxes and casualty insurance. When a wrapped mortgage is impounded, the AITD is also impounded [See RPI Form 442 §2];
• contract collection, for the agent to check whether the seller has agreed with the buyer to place the mortgage on contract collection with a third party [See RPI Form 442 §3];
• seller’s default/buyer’s remedies which states when the seller defaults on the underlying wrapped encumbrances, the buyer may cure the default and make payments directly on the delinquent underlying encumbrance [See RPI Form 442 §4];
• buyer’s default/seller’s remedies which states when the buyer fails to make payments on the AITD, the seller is no longer required to make payments on the underlying wrapped encumbrances unless the AITD is reinstated [See RPI Form 442 §5];
• a prepayment penalty pass-through which states a payoff of an underlying encumbrance caused by the buyer or made at the request of the buyer incurring a prepayment penalty places responsibility for payment of the penalty on the buyer [See RPI Form 442 §6];
• a foreclosure bid, equity payoff AITD which states the seller’s demand on foreclosure of the AITD will be the amount of their equity in the AITD. The AITD equity is the difference between the balance remaining on an all-inclusive note and the balance(s) remaining on the underlying encumbrances. The buyer at the foreclosure sale takes the trustee’s deed subject to the underlying encumbrances [See RPI Form 442 §7]; and
• a payoff demand, equity payoff AITD which states the payoff demand for reconveyance of the AITD. The payoff demand is the difference in the amounts remaining unpaid on the all-inclusive note and the underlying wrapped encumbrances. [See RPI Form 442 §8]

An agent or escrow officer uses the All-Inclusive Trust Deed Addendum – Full Payoff form published by RPI when the seller of property carries back an AITD evidencing a principal debt which includes the balance owed on an existing mortgage and the payoff demand negotiated is payment of the full remaining debt on the AITD note. It allows the agent or escrow officer to prepare and attach it as a referenced addendum to a regular trust deed. [See RPI Form 443]

The full payoff addendum for an AITD contains much of the same terms as the equity payoff addendum, except for:

• a foreclosure bid, full payoff AITD which states on foreclosure under the AITD, the seller will demand and bid the entire balance of the all-inclusive note. Concurrent with the foreclosure sale, the seller will satisfy and obtain a reconveyance of the underlying encumbrance, unless the seller is the successful bidder and credits themselves with the underlying mortgage amount they assume. [See RPI Form 443 §7]

Form navigation page published 09-2021.

Form last revised 2016.

Form-of-the-Week: All-Inclusive Trust Deed (AITD), AITD Addendum with Equity Payoff and AITD with Full Payoff – Forms 421, 442 and 443

Article: Working the AITD

Article: Required disclosures on seller carrybacks

Article: Alternative security devices

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