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.

Capitalize Deed Of Trust Fees Tax

The Real Estate Law includes what is commonly referred to as the multi-lender law.

When beginning the non-judicial foreclosure process, there are certain documents that the investor will be required to give the foreclosing officer. The borrower could loose their property (home, land, etc. Thus, when an investor makes the decision to involve a third party that is well established and reputable, the higher the chance that the borrower lives up to their end of the bargain as far as the loan is concerned. The reason is because the original note is not a recorded instrument, like the trust deed.

Trustor V Borrower 3.
Include important conditions V Should a late charge be included as part of the note, the investor needs to ensure that the conditions regarding the late charge, are included in both the escrow instructions and the note. The property will be put up for sale should the borrower default V also known as foreclosure. As for a non-monetary default, reasons for foreclosure could include an acceleration clause default because the borrower transferred the encumbering or title property in violation of the provisions outlined in the deed of trust. Speak to qualified professionals, and dont be afraid to ask questions, or rethink your decisions before making an investment.

_ A trust deed broker often charges investors no fees.
You need to understand that while some notes can be negotiable, others are not. Therefore, it is imperative that you carefully read and re-read all the closing documents. The Straight-Interest-Only Note V The straight-interest-only note, is one that does not require payments of principal during the life of the loan. This report details items that have been completed and are still under construction. It requires that the borrower usually make regular monthly payments of interest and principal throughout the period of the loan.