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.

Collateral Assignment Becomes Deed Of Trust

When you invest in a trust deed, every month that goes by increases your protection because the loan amount continues to be lowered by amortization.

The Demand Note V This note is used only on special occasions and is subject to be called in at any time for full payment. However, if problems do arise, the borrower is encouraged to set them right should they wish to protect their equity in the project. These differences will be discussed later on in this chapter.

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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. Tax Liens Tax liens have priority over deeds of trust. Inspections to Protect Investment V It is imperative that frequent inspections are conducted in order to protect the lenders investment. Before a loan is granted, a Coppercrest Funding officer will perform a personal inspection of all subject properties.

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.
Due to the fact that escrow usually involves the transfer of an investment in land, all conditions regarding the transfer need to be in writing. Make sure you understand all legalities concerning trust deeds before you make your investment. A legal description of the property that is to be transferred 4. Completion and handing over of the deed of trust or promissory note, or the completion and handing over of the endorsement or assignment of the promissory note.