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.

Who Can Act As Trustee In A Deed Of Trust In Texas

Although, in some cases, depending on the state, sometimes the issue of a lost note can be resolved by means of a lost note affidavit.

Furthermore, investing in trust deeds for your retirement is safer than running the risk of being stuck in a low yielding mutual fund, or a bad stock. A mortgage investment is a great investment for your Pension Plan or self-directed IRA (Individual Retirement Account). Note: Property can also be foreclosed by a senior lienor or through a deed in lieu. The reason is because when an investor takes the foreclosure action, the borrower often realizes the seriousness of the matter and will make the effort to make the agreed payments on time. Is a Mortgage Investment Liquid? Now thats a difference worthy of your attention.

Now thats a difference worthy of your attention.
Escrow number V Should it become necessary in the future, for the investor to discuss a section of the escrow with the agent in charge, if the investor has the escrow account number it will be easier for the agent to locate the escrow file in question. You need to understand that not every company functions the same. Know your borrowers financial status and their credit worthiness.

Before a loan is granted, a Coppercrest Funding officer will perform a personal inspection of all subject properties.
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. 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. Always remember, although trust deed investments are one of the safer investment risks you can take, and have the potential to provide you with high return, ultimately the risk is yours.