A Trust Deed is a document recorded with a county recorders office creating a secured lien on real property, which provides collateral for lenders and trust deed holders.
How does it work?
A borrower who owns or wants to own real estate needs a loan. The borrower executes a Promissory Note wherein the borrower promises to repay the lender. The recorded Trust Deed creates the secured interest attached to the borrowers real property. If the borrower does not pay as promised, the Lender/Trust Deed Investor can look to the real property for repayment and/or recovery of their invested capital.
Why would an Investor get involved?
A Trust Deed investment occurs when an investor purchases all or part of the Note and Deed of Trust. The Investor can earn a 10% +/- annualized yield and receives monthly interest payments.
From a borrowers perspective, why would a borrower pay higher rates for their loans when bank loans are less?
There are many reasons borrowers request private money loans. A few include:
Fast loans
Short term (1 to 5 year) loans
Minor credit problems
To pay judgments and liens such as Federal or State taxes
Property may have some problems that make it difficult to obtain a bank loan
I have heard of First and Second Trust Deed Investments. What is the difference?
The difference between a First and Second Trust Deed is the priority of the lien based on the date the Trust Deed is recorded. If you have a Second Trust Deed and the Borrower fails to pay the First, you would be responsible to make the First Trust Deed payments or suffer the risk of being foreclosed out and losing your invested capital.
What is the Loan To Value Ratio or LTV?
The LTV or Loan to value ratio is the ratio between the mortgage loan and the value of the real estate, pledged as security, which is expressed as a percentage. This is referred to as the Loan-to-Value Ratio:
|
LOAN |
= |
LTV |
$500,000 |
= |
62.5% (LTV) |
|
|
|
|
|
|
|
|
VALUE |
|
|
$800,000 |
|
|
This means that the loan, expressed as a percentage of the property is 62.5%.
The higher the loan-to-value ratio, the greater the lending risk because the
protective equity declines as the LTV increases.
Example: A single-family home with 4 bedrooms and 2 ½ baths is valued at
$425,000. If we are making a 70% of value loan, the loan is $297,500. ($425,000
X .70 = $297,500) The difference between the value of the property and the loan
is $127,500. This is referred to as protective equity or equity cushion.
How do we get paid off at the maturity date of the loan?
Part of our initial underwriting is to determine the borrowers exit or payoff strategy. Generally, the borrower will sell the property and pay off the loan with the sale proceeds, refinance with another Lender, or extend the loan with us.
What should an Investor expect in their investment package from a mortgage broker to help them make an intelligent investment decision?
In order for you to make an informed decision, you should require the following in your package:
Loan Summary of the Trust Deed Investment
Loan Application of the borrower
Credit Report of the borrower
Appraisal from independent, certified appraiser with original photographs and area location map
Borrower Escrow Instructions, copy of Promissory Note and Deed of Trust
If your loan will be in second position, a copy of the first position Promissory Note and Deed of Trust.
Current Preliminary Title Report issued by the title insurer.
Written explanation of what items will be removed and which items will remain at the close of escrow.
Indication of title coverage to be obtained.
How is the loan servicing handled?
Crawford Park acts as the Loan Servicing Agent for most of the loans that we offer to Investors. We handle everything from communicating with the borrowers to collecting the payments.
How do we get started?
When you are ready to invest, call Crawford Park. Let us know the way that you take title to your investments and how much you are prepared to invest. You may hold title as an individual, family trust, partnership, corporation, or as a corporate pension plan.