Chapter 5 - Legal Issues for Investors

When you invest in a trust deed there are certain legal issues that you need to consider. Regardless if you secure your trust deed investment through a single lender (whole) or by more than one lender (fractionalized), you will still need to follow certain rules and regulations as stated by real estate law.

Real Estate Law


The Real Estate Law includes what is commonly referred to as the multi-lender law. This multi-lender law has certain restrictions which it can impose on the investor. Some of these laws include, but are not limited to the following:

? The investor must have their loan serviced by a mortgage loan broker (MLB) and have a written agreement. Furthermore, the investor and the MLB need to arrange for a third party to take part in loan servicing. The third party should be a qualified, licensed real estate broker.

? A loan can have no more than 10 note holders or lenders.

? The investor is not permitted to invest more than 10% of their annual income or net worth

? Based on the type of property that is considered collateral, defined loan-to-value ratios are not to be exceeded

? Only under limited circumstances is the MLB allowed to self-deal.

? The investors loan is not permitted to be indirectly secured though any other deed of trust or promissory note, and is only secured directly through the property.


TILA - Section 32


Aside from the Real Estate Law, you may find that your loan documents will feature another legal document known as the federal Truth-in-Lending Act (TILA). The TILA was amended in 1994 and was created in respect to loans that are secured by a borrowers principal property. The rules of the TILA affect all mortgage transactions that are described as having fees or rates that are above a specific amount or percentage. Such mortgage transactions are known as high rate/high fee or Section 32 loans.

A loan that is considered to be high rate is one where the appraisal exceeds ten points on the Treasury Security yield that has similar development. A high fee loan, on the other hand, is one where the total fees and points are greater than 8% of the total loan amount. If you have any questions concerning the TILA, you can contact the Federal Trade Commission, as the TILA regulations are enforced by them.

As you can see there are many legal issues for investors to consider before they invest in a deed of trust. Make sure you understand all legalities concerning trust deeds before you make your investment.

Differences Between Deeds And Trust Deeds

warehouses, factories, port facilities, mills, ships, etc.

coppercrestfunding. When it comes to loan-to-value ratio, the goal of an investor should always be to try and keep the LTV at the lowest possible amount. Retirement plan without a trust deed investment Mary places 0. A mortgage investment is a great investment for your Pension Plan or self-directed IRA (Individual Retirement Account).

The interest rate paid by the borrower is typically higher than rates paid by banks.
Private money lending refers to loans that have been collateralized by real estate, and are made in regards to the decision of making a loan that is based mainly on the protective equity within the property. _ Declaration of Default (DOD) Notice of Breach (NOB) and the election to sell under the deed of trust. Not only is this an efficient means of collecting on a trust deed and a note, but it is more beneficial to the investor when there is a third party involved in the note and deed of trust, because the borrower simply has to make a single payment out to the servicing officer, instead of payments to multiple investors. When it comes to bankruptcy, the investor will require the assistance of an attorney to appear in court, in order to request that relief be granted from the automatic stay. The process of underwriting is what the lender goes through in order to qualify a borrower for a loan, and also makes certain that the loan has been properly documented and structured. The reason is because when an investor takes the foreclosure action, the borrower often realizes the seriousness of the matter and will make the effort to make the agreed payments on time.

A trust deed investor always needs a title insurance policy.
Keep all documents and important papers that describe, and provide evidence and security for the loan, in a safe and accessible place. A non-judicial foreclosure can be handled by just about any title company or an independent foreclosure company that has a good reputation. Notice request V A notice request must be placed in the agreement to make sure that the investor will be notified should a default action start on one of the previous loans. _ Read the appraisal Take the time to learn the difference between personal and real property. Should this occur, the investor should ask the escrow agent to produce copies of the listed documents in the title report.