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.

Notice Of Trustee Sale Under Deed Of Trust

The third party separates the investor from interaction with the borrower, relieving them of burdens and hassles which helps the investor feel more secure in their investment because the loan process is likely to run smoother.

Are their Precautions I should take? You dont want to confuse personal property for real property when you are establishing your opinion in regards to value. The reason is because if you use your Pension Plan or IRA, your income is tax deferred and can increase faster, as you will not have to pay taxes so you will have more money for gaining interest. When it comes to Loan to Value Ratio that concerns homes occupied by owners, you should never lend out a LTV that exceeds 60%, even if the home appears to be the most ideal of owner occupied homes.

However, to give you an idea of some of the pitfalls you should watch out for, the following are a few tips: It is always in your best interest to physically inspect any real estate you are intending to invest in, even if the property has already been checked out by the appraiser, broker or title company.
Non-judicial Foreclosure V This process is usually simple and fast, and is the one that is commonly used for trust deed investments. Should this occur, the investor should ask the escrow agent to produce copies of the listed documents in the title report. Find out the experience, knowledge and integrity of the broker with whom the transaction will be arranged or made. The instructions provided by escrow determine the conditions that need to be met or waived before the escrow officer can take action and disburse your money to either the note holder or the borrower.

There is no question that some borrowers will do everything in their power to try and avoid and delay making payments.
At the same time every month, statements and a check that covers the interest earned throughout the month are mailed to the investor(s). Another important difference is that title insurance is a single premium product. As for a non-monetary default, reasons for foreclosure could include an acceleration clause default because the borrower transferred the encumbering or title property in violation of the provisions outlined in the deed of trust. This report details items that have been completed and are still under construction. In short, the borrower will file a petition for bankruptcy.