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.

Real Estate Trust Deeds

Judicial Foreclosure V this process is the more costly method and is when the courts are utilized to foreclose on the property, and an attorney is required.

While all notes function with the same end in mind, there are different types of notes that can be obtained. The standard yield is 11 V 14% per annum. Obtain certified copy of escrow papers V The investor needs to obtain a certified copy of escrow papers, which is an escrow file that has been verified and signed by an agent of the escrow company and is considered to be a valid and accurate copy of the original document. _ The security position of the owner of a trust deed is not shared with anyone.

A power of attorney can be implemented to allow another individual to act on behalf of the absent party and sign for them.
With a lender approved draw schedule, the proceeds of the loan may be funded over a certain amount of time. Even though each policy works in the best interest of the investor, ALTA is still considered to be the best choice among the two, and is something you should keep in mind when selecting a policy. While some properties may look similar, you need to understand that no two pieces of land are the same. Once you have completed all of the necessary instructions and requirements for escrow, and it begins to take its normal course, you are now ready to close escrow which is often referred to as close of escrow, closing or settlement.

For instance there are: Improvement and Renovation Construction Loan V this loan is funded to enhance the value of property based on upgrades and modifications.
_ The security position of the owner of a trust deed is not shared with anyone. However, make sure you make copies of both documents, so you can have them on hand, and refer to them later for future use. In order for a note to have negotiability, the note must have the option of unconditional promise to pay, without contingency, which is based on the future actions of the borrower.