California Real Estate SalespersonFinancingMedium
A seller carries back financing by creating a new junior loan for $220,000 that encompasses the existing $150,000 first trust deed, which remains in place and unpaid off. The seller collects the buyer's payments on the full $220,000 balance and continues making payments on the underlying $150,000 loan, keeping the interest rate spread. This financing arrangement is called a:
- APurchase-money second mortgage
- BPackage mortgage
- CBlanket mortgage
- DWraparound (all-inclusive) trust deed
Show answer & explanationAnswer & explanation
Correct answer: D. Wraparound (all-inclusive) trust deed
A wraparound or all-inclusive trust deed (AITD) is a junior loan whose face amount includes the balance of an existing loan that stays in place; the wraparound lender (often the seller) collects payments on the total amount and continues paying the underlying loan, profiting on the rate spread.
Why the other options are wrong
- A. A purchase-money second is simply seller financing for part of the price, but does not wrap the existing first loan's payments.
- B. A package mortgage includes personal property along with real property, unrelated to this scenario.
- C. A blanket mortgage covers multiple properties under one loan, not this structure.
Wraparound (All-Inclusive) Trust Deed
A junior financing instrument that includes the balance of an existing loan; the wraparound lender collects payments on the full new amount and continues servicing the underlying loan.
- Existing first loan stays in place, not paid off
- Wraparound lender profits from the interest rate spread
- Common seller-financing tool when assuming or paying off the old loan is undesirable
Memory trick: Wrap it like a burrito: new loan wraps the old loan inside.