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Below is an
excerpt from
http://www.dre.ca.gov/pdf_docs/forms/re869.pdf . Each state
have its own rules and regulations related to Trust Deed
Investment although the specifics applies to California's
laws the general concept is held true to every other
states law.
Your Money–Your
Investment–Protect Your self!
Do you want a good
return on your money or investment? Perhaps an excellent return.
Better yet an out standing return! An excellent or even an
outstanding return on invested funds is the dream of any
investor, especially when the excellent or outstanding return is
steady and reliable and not subject to market fluctuations.
What are we
talking about here? What kind of investment can provide all
these wonderful traits? Well, there are those that will tell you
there is just such an investment opportunity. What is it then?
Trust Deed
Investments
Trust deed
investments, also known as mortgage loan investments, are very
enticing. High interest rates providing excellent returns can
lure both sophisticated and un sophisticated investors. Many
investors do not clearly understand the nature of trust deed
investments. Heavy reliance may be placed on friends who are
also investors, friends who are actually selling trust deed
investments and even trusted advisors who appear to be very
knowledge able in such investment opportunities. True stories
abound of trust deed investors who have been quite successful,
but there are also those who lost nearly everything. This
happens because many trust deed investors do little or nothing
in the way of investigating or inquiring into the investment
because the high rate of return is just too alluring. There are
many details to be resolved in a trust deed investment, but
these details can be arranged to an investor’s satisfaction
during the loan negotiations and/or escrow process. The investor
needs to make some initial inquiries about the two basic facets
of such an investment, i.e., the real property securing the note
and trust deed and the borrower.
The Borrower
The borrower is
the person who will make the payments on the note and trust deed
purchased or funded by the investor. Important considerations
are the borrower’s ability or capacity to make payments and the
desire to make the payments. In other words, items to consider
are the income of the borrower, his or her job stability, assets
and other debts upon which the borrower must also make payments.
The borrower must also want to make the payments. This may be
measured by past credit history. Has the borrower made other
payments and done so in a timely fashion? If not, why not?
Credit reports can help provide this type of information.
The Real
Property Securing the Investment
The real property
securing the investment is the ultimate means by which the
investor can regain the money invested if the borrower fails to
make payments. This means fore closing on and selling the
property. This will always be a possibility for the investor.
Most trust deed investors do not have any intent in having to
sell the property to recoup their investment. It can be an
expensive process, the property may not always be readily sold
and all of the investor’s funds may not be regained by the sale
as the property may not be worth enough to cover the investment.
Also, there may be other liens or loans against the property
which need to be paid. All of this and more should be given
serious consideration when making an investment.
Mortgage Loan
Brokers
Trust deed
investments are generally available through real estate brokers.
Those brokers engaged in arranging loans for borrowers on the
borrowers’ real property using the investment funds of private
investors are generally referred to as mortgage loan brokers.
Mortgage loan brokers will usually handle all the arrangements
of your investment and generally will collect the payments on
your behalf from the borrower. You should also receive a
Lender/Purchaser Disclosure Statement describing the important
aspects of your in vestment. The broker may even handle the
foreclosure of the property if the borrower fails to pay the
debt. However, the investor must make the effort to protect
himself or herself by being familiar with the process and the
elements of such an investment. Additionally, be sure to check
the license status of the mort gage loan broker and/or other
professionals assisting you. To do so, go to
www.dre.ca.gov/licinfo.htm or contact the Department of Real
Estate and/or the Department of Corporations.
Since some of
these loans may have substantial costs to borrowers in the form
of high interest rates and/or high loan fees, both Federal and
State consumer protection laws may restrict or prohibit certain
loan terms and place increased responsibilities on both brokers
and lenders. Violations of these rules could impact your
ability to enforce some of the terms of the loan contract and
could also incur civil penalties. Again, the investor must
protect himself or herself by be coming familiar with these laws
that prohibit “predatory” and “usurious” lending practices.
For More
Information
To assist
potential trust deed investors, the Department of Real Estate (DRE)
offers a publication that provides some of the essential
elements of trust deed investing.
The publication
entitled “Trust Deed Investments - What You Should Know!!” is
available on the DRE website
http://www.dre.ca.gov/pdf_docs/re35.pdf
. Or, you may request a free copy by subtting your request
to the DRE.
Questions
If you have any
questions, please contact:
Department of Real
Estate
Mortgage Loan
Section
P.O. Box 187000
Sacramento, CA
95818-7000
(916) 227-0770
Remember it’s your
money and your investment — protect yourself! |
