Introduction to Trust Deeds

In this section, we will give you a brief overview of what is involved in fundingTrust Deeds. We must give you a general disclaimer that the funding of a loan or the purchase of a promissory note is an investment which involves risk.Our goal will be to educate you as the potential investor, which will help reduce the overall risk.First we will go over what a promissory note and a trust deedare, which are two of the key elements of lending on real estate asa private investor. We will then touch on foreclosure and what it means to a trust deed investor.

There are individual pages on the left to learn more about the process of investing in Trust Deeds. The most important part of investing in Trust Deeds is having an experienced mortgage broker like Secure Deeds. The mortgage broker should be able to provide you with all the information relating to your trust deed investment, including: (1)market value and equity level of the property; (2)borrower information including financial standing and creditworthiness; (3)title insurance policy information; (4)escrow and settlement process involving funding of the loan or the purchase of the note; (5)documents and instruments describing, evidencing, and securing the loan or purchase of the promissory note; (6)loan payment servicing options; and (7)options to recover your investment when the borrower fails to pay. These sections are broken down further inindividual pages on the left.

Promissory Note

A Promissory Note is a written promise to pay or repay a certain amount of money at a certain time, or in a certain number of installments, or on demand to a named person. A Promissory Note usually provides for payment of interest to the lender. The person receiving the loan proceeds (borrower) becomes obligated to repay the debt by signing the Promissory Note, which specifies: (1)the amount of the loan (principal); (2)the interest rate; (3)the amount and frequency of payments; (4)when the borrower must repay the principal (due date); and (5)the penalties imposed if the borrower fails to timely pay (late charge) or decides to payall or a portion of the principal prior to the due date (prepayment penalty). The Promissory Note identifies the borrower and the person whois lending the money, called the noteholder or lender.

Trust Deed- The Security of the Promissory Note

The Promissory Note is secured by a deed of trust (or Trust Deed) that is recorded against the title of the borrowers real estate (the property). Unlike deposits in a bank or savings and loan, which are generally insured by a federal agency (such as FDIC) and may usually be withdrawn with limited notice, theTrust Deed is the only security offered when lending on real estate. In a deed oftrust, the borrower (trustor) transfers the property, in trust, to an independent third party (trustee) who holds conditional title on behalf of the lender or note holder(who, on a deed of trust is referred to as a beneficiary). The trustee can execute the following powers: (1)to reconvey (detach)the deed of trust from the title once the borrower satisfies the obligations under the promissory note, or (2)to sell the property if the borrower defaults (foreclosure).

Foreclosure

Foreclosure is what takes place if the borrower defaults on the promissory note. Itinvolves the process of selling the property to a third-party bidder or, inthe absence of a sufficient third-party bid, acquiring title to the property. The foreclosure sale, in most cases, satisfies the debt.Dependingon the method of foreclosure, the nature of the loan, the circumstances of origination, and the value of the property, you may or may not be able to recover your entire investment. Forexample, if a third-party bids atthe foreclosure sale an amount equal or greater then the amount your are owed (including fees, costs, and expenses of the foreclosure itself), your investment would be fully paid. On the other hand, if you bid the full amount that is owed to you, including all foreclosure fees, costs and expenses (called aFull Credit Bid), and there are no higher third-party bids, you will gain title to the property and its value will be the source ofrepayment on your investment. You could then sell the property for a potential profit or keep it as an investment. If you dosell the property and don't recover your entire investment, in some situations you are also allowed tofile for a deficiency judgment, which is a judgment against the borrower for the difference between what you received for the property and the amount that was owed to you.