When it comes to investing in trust deeds, documents like a trust deed are not always required when financing a home purchase, depending on your lender and state.
When a borrower defaults on a loan and the lender has to foreclose, the differences between mortgages and deeds of trust become extremely important. There are more deeds of trust than mortgages in the United States.
It's common for property purchases to be accompanied by a mountain of paperwork. Understanding all the various documents you have to sign can be confusing, especially when you don't know what they all mean. In any case, the trust deed is one of the most important contracts to understand.
Table of Contents
The deed of trust performs an important role in these transactions, the deed transfers legal title to the real property to an impartial trustee—typically a title company, escrow company, or bank, which holds it as collateral for the promissory notes.
The equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property.
This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the debt in full, at which point the title to the property becomes the borrower's. If the borrower defaults on the loan, then the trustee takes full control of the property.
An escrow company serves as a trustee in this agreement by transferring the borrower's property title. Generally, three parties are involved in a trust deed: the borrower, the lender, and a third-party trustee. Real estate tends to go for trust deed investing more frequently.
The borrower retains ownership of the property after the trust deed formalizes the loan over it. That property is then the borrower's responsibility and can be used by him. However, if the borrower defaults on the loan, his or her property is transferred to the trustee party.
In a deed of trust, you'll find a lot of the same information as in a mortgage document about your property, loan, and associated terms and conditions. There are often acceleration and alienation clauses in deeds of trust, so when you fall behind on your loan, you may be subject to an acceleration clause, which demands immediate repayment.
In addition to being called a due-on-sale clause, alienation clauses prevent people who purchase property from continuing to repay their loans as they are currently structured. When you sell the property, the alienation clause will require complete payment of the loan.
Redeeming property means regaining ownership of property that is being lost to foreclosure or that has already been lost. It is often necessary for them to repay loan principal balances as well as debt in order to regain their property.
The states that favor deeds of trust may seem like they offer few protection and rights to borrowers. However, redemption rights in states that only offer mortgages tend to be more liberal than in states that only offer mortgages.
Foreclosed properties are typically sold at auction within a year of the foreclosure process, but some states might allow borrowers to try to pay off their defaulted mortgage for up to 12 months.
Deed of trust states often implement leniency in foreclosure cases, but those buying foreclosed homes at auction may not be as fortunate. For some, it is best to take a look into a trust deed investment.
The trust deed agreement won't be affected by any new borrowings or credits during the term of the trust deed. If the other loan puts extra financial pressure on you, you may have difficulty keeping up repayments for the trust deed. If you end up not being able to keep up payments, it could jeopardize the success of the trust deed.
It is almost certain that your debt situation will worsen once again, and if the trust deed fails, creditors included in the arrangement will be able to seize your property. The result could be that you end up going bankrupt and losing your assets, including your home.
Obtaining money from them is likely to be a straightforward process, with fewer product options and more demanding loan terms such as more deposits or higher interest rates.
When you work with our team of financial experts, you can learn more about investing in trust deeds. Please contact us if you have any questions. Our team is ready to help, contact us at 949-881-7128 at Saint Investment Group today!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.
