The High-Stakes Mechanics Behind All Inclusive Trust Deeds Most Investors Miss

There’s a reason people get nervous when they hear the words “hard money.” It’s not because the strategy doesn’t work—it’s because when it does, it works ruthlessly. At the heart of many aggressive real estate plays, short-term rehabs, and desperate financing situations lies one legal instrument that holds it all together: the all inclusive trust deed. It’s quiet. Powerful. Underused. And in the wrong hands? Dangerous.

If you’re in the world of hard money lending, the AITD isn’t just an advanced tool—it’s your legal shield, your profit enhancer, and sometimes, your last resort exit plan. But if you don’t understand exactly how it works—and when it can fail—you’re not lending. You’re gambling with court time.

Most lenders have never even heard the term. Most borrowers sign them without reading. And most real estate professionals can’t explain the difference between a wrap and a standard trust deed. But if you’re about to fund a deal—or take a second position on distressed equity—you better learn fast.

What Is an All Inclusive Trust Deed?

The all inclusive trust deed, often abbreviated AITD or referred to as a “wraparound mortgage,” is a creative financing strategy where the lender records a new trust deed that includes the original underlying mortgage. It doesn’t replace the original loan—it wraps around it. The borrower continues to make payments on the original mortgage while also making payments to the new lender based on the terms of the AITD.

That sounds simple until it isn’t. Because once you’re in the second position, every move the borrower makes—or fails to make—affects you. And unless you’ve structured your documents with precision, you could be left holding a worthless paper instrument while the underlying noteholder wipes you out.

Still, when executed correctly, AITDs allow hard money lenders to:

• Control financing terms

• Capture interest spreads

• Secure collateral without full payoff of the original loan

• Leverage seller financing structures legally and efficiently

But that control only exists if every clause is airtight, every party understands the structure, and the underlying loan allows it. Spoiler alert: many don’t.

Why Hard Money Lenders Use All Inclusive Trust Deeds

In a world where speed trumps price, hard money lending thrives. Investors need fast closings, quick turnarounds, and flexible underwriting. But most hard money deals involve distressed or unconventional borrowers—people with properties they can’t refinance or sell traditionally.

That’s where the all inclusive trust deed shines. Instead of forcing the borrower to pay off the existing mortgage (which they often can’t), the lender wraps their loan around it. This lets the borrower move forward with the transaction, and the lender captures a higher interest rate by leveraging the spread.

Here’s what that might look like:

In this structure, the borrower pays $1,400/month to the hard money lender, who continues paying $600/month on the original note, pocketing the $800 spread—plus any other fees or interest built into the front of the deal.

On paper, it’s gold. In reality? It’s walking through fire in flip-flops if you haven’t closed that document like a lawyer with a grudge.

The Risk of Not Understanding the Wrap

Most hard money lenders underestimate just how fragile a wrap really is. It’s dependent on three factors:

1. The borrower making two payments without fail

2. The original mortgage not having a due-on-sale clause

3. The title and recording documents being airtight

Let’s be clear. Almost all modern mortgages contain a due-on-sale clause, which allows the lender to call the entire loan due if the property is sold or transferred. An AITD triggers that clause—even if title stays in the borrower’s name—because the beneficial interest has changed hands.

If the lender discovers the wrap, they can foreclose—wiping out both the borrower and the hard money investor unless backup plans were already in place.

This isn’t fear mongering. It happens. And it’s one reason why experienced AITD investors often keep escrows in place to pay the underlying mortgage directly. That way, they at least know the first position note isn’t falling behind—even if the borrower is.

Legal Strategy Is Everything

Hard money lenders who use AITDs successfully have legal teams. They don’t rely on downloadable templates. They custom-draft:

• The AITD agreement

• Escrow instructions

• Subordination language

• Default provisions

• Wrap-specific foreclosure procedures

• Authorization forms for underlying lender contact

Without these tools, you’re exposed. Worse, you may find yourself with an unenforceable instrument that courts won’t recognize as valid once the borrower defaults and the original lender moves to foreclose.

That’s when you realize you didn’t just wrap a loan—you wrapped yourself into a legal noose.

The Advantages—When Done Right

Despite all the risks, there’s a reason seasoned pros still use the all inclusive trust deed model in hard money lending. When crafted properly, it lets lenders:

• Secure a second-position lien without triggering full payoff

• Earn a higher blended interest rate across capital invested

• Structure exit options without involving institutional banks

• Move fast—often closing in 5–10 days

• Create powerful seller-finance-style notes for future resale or syndication

In short, it’s flexibility disguised as risk. You either use it to your advantage—or you drown in its loopholes.

States Vary Wildly in How They Treat AITDs

Another overlooked risk in all inclusive trust deed usage is jurisdiction. Some states, like California and Texas, recognize AITDs and even have established foreclosure procedures specific to them. Other states are vague or hostile—treating them like disguised mortgages or claiming they violate disclosure laws.

If you’re operating in a state with unclear case law on AITDs, you’d better have case precedent and legal doctrine ready to argue your position. Otherwise, one court order can vaporize your security.

And if you think crossing state lines doesn’t matter? Ask any lender who tried to enforce a Texas AITD in Illinois court. You don’t want to be the next case cited in a mortgage fraud lawsuit.

Not All Borrowers Understand the Structure

One of the biggest headaches in these deals is borrower education. They don’t understand what a wrap is. They think they’re replacing their old loan. They don’t realize that two loans still exist and that two defaults are now possible.

If the borrower stops paying the hard money lender but keeps paying the original loan—or vice versa—disaster can unfold. Lenders need to document every conversation, walk through flow charts, and ensure the borrower signs off on their understanding in writing.

Because when default happens, borrowers get lawyers. And lawyers love to claim fraud or nondisclosure when wrap structures were explained poorly.

You can avoid that. But not if you skipped the paperwork to “make the deal happen fast.”

If You’re on the Edge—Don’t Wrap Yet

Wraps are power tools. And like any power tool, if you don’t know what you’re doing, you’ll cut your hand off. An all inclusive trust deed can make your hard money model sing. It can protect you, boost your yield, and give you control over chaotic situations.

But if you’re unsure how your state views them, if you’ve never enforced one, or if your borrower is unstable—pause.

Better to walk away from a risky deal than spend two years in court trying to unwind the wrap you didn’t secure properly.

And If You’re Already in the Middle of a Bad One?

If your borrower’s in default, if the first mortgage is about to foreclose, or if you’re staring at conflicting payment records, this is not the time for hesitation. The time to fix it is now—not after the foreclosure sale notice arrives.

And if you’re also dealing with an irs lien complicating your wrap? You’re deep in federal territory now, and it’s time to get real.

Start here:
👉 Has the IRS Sent You a Notice?

Because if your hard money note is tangled with a federal tax debt, your lien is on thin ice—and the agency holding the blowtorch isn’t going to blink.