An all-inclusive deed of trust (“AITD”) is used when the seller will be financing part of the selling price, and the buyer will also take subject to the existing deed of trust. The seller remains on the existing loan (and continues to make the payments) and finances the difference between the existing loan balance and the purchase price. But any transfer normally triggers the “due on sale” or acceleration clause, where the lender may foreclose, calling the entire loan due. Once the deed is recorded, the transfer is public record, and the Lender may catch it. But there is an exception in Federal Law which blocks lender action for a transfer to the spouse or children of the borrower. This becomes important where the original loan has a low interest rate, or the buyer is unable to qualify for a loan.
All-inclusive deeds of trust are used when the interest rate on the existing loan is much lower than the current prevailing rate, the rate of the wraparound can be lower than the [prevailing rate, and the seller still earns a spread between the rate he is paying and the rate that the buyer is paying to the seller.
The exception is part of the Garn–St Germain Depository Institutions Act of 1982, that deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans. More importantly for us, it prohibits lenders from exercising the due on sale clause in transfers between parents and children. There are some other exemptions set out at the end of this Blog.