Chapter 13 - Pitfalls for Investors to Watch For

Although a trust deed investment is one of the safer investments you can make, it is imperative that you understand there are still risks involved. The best way to ensure that you avoid pitfalls is to learn as much as you can about trust deed investing and everything it involves. 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.

Take the time to establish your personal opinion regarding the value of the real estate collateral. You can do this by using a number of approaches such as:
? Ask your realtor for information on closed sales of comparable properties
? If you were to purchase the property today, what would it be worth to you?
? Read the appraisal

Take the time to learn the difference between personal and real property. You dont want to confuse personal property for real property when you are establishing your opinion in regards to value. Real property is that which is considered to be affixed to the earth. However, dont mistake all property that is fastened to the ground to be real property; some of these items are personal.

You should make it a point to know how the borrower is planning to pay the private money loan. Just because short term loans are primarily funded based on real estate equity, you should discover what the borrower has already pre-approved for their take out loan.

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. Likewise, as far as non-owner occupied homes are concerned, the LTV should not exceed 50%

You should never rely on future promises regarding improvements unless the proper draws for the upcoming work that is to be completed is officially set up.

Make sure you do not want or require any final, additional documentation before you close. Such documentation can include, but is not limited to following:
? Certificate of occupancy
? Well report
? Proof of purchase cost
? Notice of completion
? Closing statements
? Roof reports
? Toxic reports
? Sign off of final permit card
? Etc.


Take the time to research everything you can about trust deed investments. Speak to qualified professionals, and dont be afraid to ask questions, or rethink your decisions before making an investment. By following these guidelines, you will lower the risk you take when making a trust deed investment, and will be less likely to experience a pitfall.

California Deed Of Trust Process

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

Trust deeds can be traded4. ) _ Other Liens (property taxes, judgment liens, etc. Without the constraints of such rules, private investors can provide quicker loans that do not follow the same rules as is required for traditional lending. That being the case, it is in the investors best interest to loan through a third party that has the experience to deal with problem borrowers. Thus, in order for the investor to protect themselves in the event of a tax lien, a provision should be added in the trust deed and note that explains if the borrower and their property have or will receive a tax lien; it is the trustors responsibility to contact the investor. However, despite their differences, each policy works to insure some the following (Note: The list below is only a small sample of the insurance provided by these two policies): The deed of trust that is insured is recognized as a valid an enforceable lien.

_ Read the appraisal Take the time to learn the difference between personal and real property.
Private money lending refers to loans that have been collateralized by real estate, and are made in regards to the decision of making a loan that is based mainly on the protective equity within the property. You need to understand that while some notes can be negotiable, others are not. 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. American Land Title Association (ALTA) V This policy is generally issued to a lender who holds a deed of trust in first position. Non-judicial Foreclosure V This process is usually simple and fast, and is the one that is commonly used for trust deed investments.

If you lose a note, it will need to be replaced.
Chapter 7 - Title Insurance Title insurance is quite different from other types of insurance. Different factors associated with each lot of land such as casements, CCRs, and location, make one piece of property different from the next. Because unlike other forms of insurance that provide coverage for unpredictable occurrences that could possibly happen in the future (such as life, health or casualty insurance), title insurance protects the party insured from loss that results due to events that happen before the effective date of the title insurance policy. This is due to the fact that borrowers are willing to pay a higher interest rate because private investors are flexible with their loans, as they are not limited by traditional rules of bank loans. Understand the escrow process. 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.