Chapter 2 - The Basics of Trust Deeds

At this point you know that a trust deed is one of the safest investments you can make that offers you a high return, but what exactly is a trust deed? A trust deed, or deed of trust is a document that is used to secure the debt on a home acting as a mortgage. A trust deed is recorded as a lien on real property. However, although a deed of trust acts like a mortgage, it is important that you understand there are differences between a mortgage and a deed of trust. These differences will be discussed later on in this chapter.

A trust deed is used as security for a loan on real property, and the specifics regarding the loan are written in a promissory note. A deed of trust is then documented at the county recorders office to legally notify the world that the property in question has now been pledged to secure a loan.

There are three parties involved in a trust deed:
1. Beneficiary Investor/Lender/note holder
2. Trustor Borrower
3. Trustee Third party selected by the investor who has the legal power to act on the investors behalf and hold title until the note has been paid.

What secures a trust deed investment?

When making a trust deed investment, the deed of trust recorded against the borrowers property title is what secures the lenders investment. When making an investment in a deed of trust, the trustor (borrower) makes the property transfer, in trust, to the trustee (independent third party). The trustee then holds the conditional title on the behalf of the beneficiary (investor/lender/note holder), and then either of the following takes place:

1. The trust deed will be returned to the borrower once they satisfy all of the terms and conditions that were outlined in the promissory note

2. The property will be put up for sale should the borrower default also known as foreclosure. Foreclosure is the process that is taken by the investor in order to sell the property to a bidder from a third party, or to obtain title to the property. Usually the foreclosure sale satisfies the debt that is owed to the investor.

The difference between trust deeds and other investment types

What is the difference between a mortgage and a deed of trust?

The following are the basic differences between a mortgage and a deed of trust:

? Only two parties are involved in a mortgage document - the lender and the borrower.

? Three parties are involved in a trust deed the lender, the borrower and the trustee.

? With a mortgage document foreclosure the state law will determine the foreclosure method that will take place, which can sometime involve a lengthily process.

? A deed of trust usually involves a quicker foreclosure, because the most common type of foreclosure is a non-judicial one.


The different between investing in a deed of trust and the stocks

? The value of a stock fluctuate hourly, and sometimes by the minute.

? The value of a deed of trust is fixed and is always stable.

? An owner of stock is in third lien position.

? The owner of a trust deed is generally first or second in regards to the lien position.

? Every stock investor is charged a fee from their stock broker.

? A trust deed broker often charges investors no fees.

? Stocks can be purchased and sold through brokers.

? Trust deeds, on the other hand, are purchased and sold through brokers, but can also be purchased and sold privately at no extra charge.

? The security position of the stock owner is shared among thousands of other holders.

? The security position of the owner of a trust deed is not shared with anyone.

? A is supported by conglomerate properties and equipment that are often from foreign countries (ex. warehouses, factories, port facilities, mills, ships, etc.).

? Deeds of trust are only collateralized by real estate that occurs within the U.S., and usually by homes that are within the local area of the investor.

? A stock is a gamble.

? A trust deed is an investment


Although it is evident that there are many differences between trust deeds and other types of investments, one thing is for certain a trust deed is an investment opportunity that offers you a high return with less risk.

Fractionalized Trust Deed

Those that use unilateral escrow instructions generally sign at the end of the escrow term, while those that use bilateral escrow instructions usually draw up and sign in the initial opening of escrow.

However, if problems do arise, the borrower is encouraged to set them right should they wish to protect their equity in the project. A mortgage investment is not as liquid as a stock or bond. 00 and . A negotiable note must provide a set sum of money for the payment at a specific time, and must be payable to the holder. However, if an escrow involves tax and legal problems and is extremely technical, than the investor should seek the advice of an attorney. BorrowersAnother important aspect of the underwriting process is finding out how the borrower intends to refinance the loan in regard to the loan terms that have been specified in the promissory note.

The documents can be sent to the unavailable party ahead of time and pre-signed.
A non-judicial foreclosure can be handled by just about any title company or an independent foreclosure company that has a good reputation. _ Deeds of trust are only collateralized by real estate that occurs within the U. That being said, a person may choose to recourse a note so that the payment goes to one individual in particular and no one else.

If it happens that an error is made, or a lien has been overlooked and such aspects affect the trust deed holder, then the holder can take legal action against the company that issued the title insurance policy.
This allows them the ability to approve and fund loans within hours or days of a submitted application. For instance, a good rule of thumb that every investor should follow is to never have an LTV higher than 70%. While most investments are made with the same end in mind, the main difference between each investment type are the strategies and the level or risk involved. However, if an escrow involves tax and legal problems and is extremely technical, than the investor should seek the advice of an attorney.