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.

Trust Deed Loan

A few interesting facts about liens It is important for you to know that liens in first priority are the most ideal.

_ Tax Liens (estate, federal and state taxes, etc. The report that is conducted by the title company is known as a preliminary report or a prelim. This multi-lender law has certain restrictions which it can impose on the investor. When making an investment in a deed of trust, the trustor (borrower) makes the property transfer, in trust, to the trustee (independent third party).

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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. In order to obtain the accurate information that is required to verify the priority of the deed of trust, you will find that Title insurance policies will provide you with what you need to know. A certified copy of escrow papers is especially important when it comes to cash transactions where the investor wants to ensure the trail of cash is carefully documented. Furthermore, the investor should also make it a point to ask questions in the event they discover certain wording or restrictions they fail to comprehend.

The following is how a typical loan service is conducted.
00 and . Include important conditions V Should a late charge be included as part of the note, the investor needs to ensure that the conditions regarding the late charge, are included in both the escrow instructions and the note. 75 paying approximately a 0. When it comes to researching the property, the title company will begin from the time the government conveyed the property, and then move on to the original private owner, and continue on until the title company reaches the most recent record within its database. That being said, the following is a list of the criteria that is required to be stated within the escrow instructions:1. _ A trust deed broker often charges investors no fees.