Trust deed investing entails purchasing loans with real estate as the security. Since the bulk of these investments is short-term loans with an average maturity of five years or less, you can quickly ascertain whether the investment was wise.
Banks normally only offer long-term mortgages, not short-term bridge loans, therefore trust deed investment fills a gap in the real estate lending market. By providing short-term loans secured by real estate, you, as a trust deed investor, essentially fill the gap left by the bank.
The information provided here is a useful resource if you’re interested in finding out more about trust deed investing and the kinds of options it offers.
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Utilizing a Trust Deed
When a home buyer closes on a property, a deed of trust is signed between them. Home buyers owe the mortgage lender back their loan, and they hold title to the property until it is repaid. There are some states that use deeds of trust instead of mortgages to secure real estate transactions.
Land security agreements and trust deeds serve similar purposes. A deed of trust is different from a mortgage in that a third party holds a title in the borrower’s name rather than the borrower and the lending institution having an interest in the outcome—some even go for the process of investing in trust deeds.
The lender holds the security interest in both deeds of trust and mortgages, but not like conventional mortgages. The borrower and lender are the parties involved in a mortgage agreement and the real property secured by a deed of trust is held by a third-party trustee.
To borrow money using your property as collateral or to purchase real estate using a deed of trust, you must have a trustee. The qualifications of being one are typically governed by state laws where deeds of trust are used instead of mortgages.
The Process of a Deed of Trust
There are a few additional steps needed to process a deed of trust due to the involvement of a third party. These are filed with the clerk and recorder’s office once the borrower signs all necessary documents, which entitles the property to a lien.
Lenders release their lien upon repayment of their loans, and the trustee holds title until the loan is repaid. After the promissory note has been marked as paid, the bank will return it to the customer with the release documents attached.
The Transfer of Deeds of Trust
Assignments of deeds of trust are usually recorded in county records when they are transferred from one party to another. These refer to mortgage transfers and deeds of trust.
When a mortgage or deed of trust is assigned, the owner takes over the seller’s interest in it.
The Deed of Trust Foreclosure Process
Generally, lenders benefit from deeds of trust because they can foreclose on a home more quickly. The lender will not have to wait for court approval before commencing the foreclosure process with most deeds of trust that have non-judicial foreclosure clauses.
Even if a nonjudicial foreclosure process is available, the lender might choose to foreclose judicially. Foreclosures without a court order are governed by state law and those that occur non-judicially tend to be completed much faster than those that occur judicially.
Lenders and Foreclosure
A trustee distributes the proceeds between the lender and borrower after the sale. Anything over that amount goes to the borrower, and the lender gets whatever is needed to satisfy the debt.
A lender can then purchase the property, fulfill all of the deed’s requirements, and close out the debt. If the borrower defaults on their loan payment, a deed of trust may be more advantageous from the lender’s standpoint, since it avoids a lengthy and expensive foreclosure process.
In the Case of Non-Compliance with Debt Obligations, What Do You Do?
A trustee has the authority to take legal action on behalf of the lender if the borrower does not follow through on their payment obligations. A deed of trust outlines these provisions, and state statutes govern their application.
Trustee sales must be neutral, meaning that neither the trustee nor his estate will benefit from them. Sale by a trustee is final and binding. Once the trustee has distributed the proceeds, up to the amount of the unpaid loan, the lender is entitled to receive half and the buyer the remaining half.
It’s vital to get more information when working with trust deeds and trust deed investment if you are planning to invest in a property or lend to a prospective buyer. The financial interests of vulnerable parties are at stake in these transactions.
Learn More About Trust Deed Lending with Saint Investment Group!
Decisions related to this require a lot of thought and care, so it is important to carefully consider your options. You want to be sure that you are investing in a company that can meet your needs. Should you have any questions about investing in trust deeds, our team will be happy to help. Email us at info@saintinvestment.com or contact us at 949-881-7128 at Saint Investment Group today!
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President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.
