How Safe is a Trust Deed Investment?
The Lenders/Investors real safeguard in a trust deed is the property being used as collateral. This is why a dependable, independent and accurate appraisal of the property is so important in this kind of transaction.
We, at Diversified Loan Services, do not employ in house appraisers and prefer to use independent, licensed appraisers to ensure an honest and accurate value of the property. A good Mortgage broker will provide you with his/her own review of the appraised value along with a personal inspection of the property for further guidance. You are also encouraged to review comparable sales on the internet and seek the opinion of a local realtor. This three (3) pronged approach will help solidify the property’s value when making a decision to lend.
The more equity in the property, the more security a trust deed loan will provide. If for whatever reason, the borrower(s) cannot meet their obligations, California is a non-judicial foreclosure state and allows a Trustee sale in three (3) Months and 28 days from the date a default is filed. If owner occupied, you will add another 90 days to the latter. Should a loan result in default, Diversified Loan Services offers to manage this process for any investor who would like to use our services.
Investors should also be aware that trust deed investments, however safe, are not like savings accounts or stocks that can be “cashed” out upon request. While it is possible to borrow against a trust deed or assign it to another investor, there’s no guarantee. Investors should be prepared to hold the trust deed note until maturity.
How do I find a Borrower?
One of the best ways is to find a professional Mortgage Brokerage Firm licensed by the California Department of Real Estate. They are required to abide by California Department of Real Estate laws and regulations. A Mortgage Brokerage firm brings together people who need money (Borrowers) with people who have money (Investor/Lenders). For this service, the broker is paid a fee by the borrower at close of escrow.
An experienced broker usually has the capability of performing a number of other functions as well. Most brokers will:
* Obtain a licensed professional appraisal on the property used as collateral.
* Advise the Investor/Lender concerning important details regarding the property.
* See to the completion, signing and recording of all documents needed to complete the transaction through a reputable Title Company.
* Ensure that the deed of trust is insured by Title Insurance.
* Supply additional protection by seeing that the lender is covered by a fire insurance policy.
* Provide lender with copies of all recorded documents including
Title & Fire Insurance policies.
How do I protect Myself?
As with any investment, no Real Estate loan is completely without risk. Historically, Trust Deed
loans have provided competitive rates of return. But, with any investment, it is prudent to keep the following in mind;
* Be suspicious of anyone who promises you the sun, moon & stars. Carefully check the
track record of any company that offers interest rates substantially higher than the current
market will allow.
* A loan on improved real property in today’s market should not exceed 65% of the
appraised value of the property. Anything above this should be scrutinized carefully.
* Unfortunately, there is no law that says property values will rise, no matter what past
performance has shown. In a down market, values are more likely to rise, providing the
Trust Deed investor with greater investment protection than in recent past.
* The two most important things you should remember are; The property you are lending on
is your collateral. If you would not want to own it, then do not lend on it. Second, the
professional record and reputation of the Mortgage Broker must be considered.
It may not be the only way to earn a higher rate of return on your money, but it
may be one of the best.
All things considered, trust deed investments arranged by a reputable Mortgage Brokerage firm and secured by local Real Estate might be one of the best ways for you to gain more attractive returns on
your investments. You may use funds from personal, IRA, or pension/profit sharing plans for this type
You will have questions, we encourage them. Please contact us as we welcome the opportunity to
discuss the benefits of Trust Deed Investing. Diversified Loan Services offers 45 years of Trust Deed investment/lending experience and has earned its reputation and business with due diligence, honesty, integrity and offering more personal services than our competition.