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.

First Trust Deed Investing

Finally, when it comes to a construction loan, construction control is imperative to any construction project.

In order to keep your original note and deed of trust safe, you should place them in a safety deposit box at your bank. 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. Borrowers that create this type of problem can often be extremely difficult for an investor to deal with, especially if the investor is new to private money lending. Different factors associated with each lot of land such as casements, CCRs, and location, make one piece of property different from the next.

Is a Mortgage Investment more Trouble than its Worth?
The signature of both the seller and buyer All of the transaction details, including the agreement made by the seller and buyer, need to be written in the escrow instructions so that it is clearly understood by all parties involved. Although it may appear that each title insurance policy listed above appear similar, that ALTA policy is recognized as being far superior to the CLTA policy. The LTV if often determined though the comparison of the loan amount to the appraised value regarding the collateral that secures the loan. Chapter 9 - Lien Priority You may or may not be aware, but a deed of trust is actually a lien on a piece of real property. Furthermore, in-house counsel will start foreclosure within 24 hours after a default has occurred on the loan. However, dont mistake all property that is fastened to the ground to be real property; some of these items are personal.

Why?
Remember, the lower the number, the more equity the investor will receive on the property. This allows them the ability to approve and fund loans within hours or days of a submitted application. Keep all documents and important papers that describe, and provide evidence and security for the loan, in a safe and accessible place.