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.

California Trust Deed

As an endorser, one should be cautious when using this note, because the payment liability is extensive.

A trust deed is recorded as a lien on real property. The following is how a typical loan service is conducted. When everything is in the clear, and the documents have been appropriately signed, the escrow officer will inform the title company to record the trust deed, who will then deliver the loan package (all the executed loan documents) to the lender. The price at which the property was purchased 5. _ A deed of trust usually involves a quicker foreclosure, because the most common type of foreclosure is a non-judicial one. The loans provided by Coppercrest Funding are first secured with deeds of trust on real estate, and in addition are supported with the borrowers personal guarantee.

However, if an escrow involves tax and legal problems and is extremely technical, than the investor should seek the advice of an attorney.
When it comes to real estate lending, LTV is the single most important element, because an adequate LTV protects the initial investment, while a remaining cushion of equity helps to pay off any unexpected costs that may occur. Almost any problem can be rectified; its only a matter of money. Furthermore, deeds of trust are safe investments because borrowers are generally a good risk to take.

Aside from the security of real property, with a trust deed investment, the other advantage is the investor receives higher than average rates of return.
Finally, when it comes to a construction loan, construction control is imperative to any construction project. Trust deed investors who invest for their retirement agree that it is the best investment they can make, because a trust deed can earn 10%, which is as much as 5 times more retirement income compared to other investing methods such as a savings account which on average pays between 2-4%. Some of the liens an investor may encounter include:_ Tax liens _ Mechanics liens _ IRS liens _ Judgment liens _ Etc.