No Worries in Trust Deed Investing

With security provided by the property itself, trust deeds are secure, managed, fixed rate investments with none of the uncertainty and worry investors hate. Unlike fly by night, unsecured investments, trust deeds have several major advantages:

A) Our security is tangible – property. Instead of a company that could fold, or shares which could lose their value in a downturn, the properties we use as security offer solid, long term value. Why be at the mercy of strikes, SEC investigations or new competitors when trust deeds offer security you can touch and feel?

B) Our security is covered by hazard insurance. In the event of a fire or any other hazard, our investors get paid back their principals by the insurance company. This turns a crisis into an easily managed return to the status quo.

C) The lien doesn’t disappear – and there is title insurance that proves that the lien is in first position, and the investor’s name is listed as the insured on the policy. In the event, that your lien is not in first position (this is exceedingly rare), you can put in a claim to the title company, and get your money back.

Here is what makes a Secured Promissory Note so special:

A Promissory Note is a negotiable instrument with special properties that make it the same as cash in the eyes of the law (Uniform Commercial Code). The definition provided in Negotiable Instruments Act, 1881 clearly expresses the characteristics of a promissory note. Section 4 of the Act defines it as:

An instrument, in writing, containing an unconditional undertaking, signed by the maker, to pay a certain sum of money, only to, or to the order of, a certain person, or to the bearer of the instrument.

The definite characteristics are noted below:

1. Written Instrument

The promissory note is a written instrument. The terms of the instrument and the extent of liability, the amount to be paid, the maker’s name, the payee’s name and the other relevant details are to be written down. The whole undertaking should be in writing.

2. Signed Instrument

The promissory note to be complete should be signed. The signature is the primary evidence which gives presumption that the maker has executed the document. A promissory note without signature loses validity.

3. Unconditional Undertaking

As per the definition of promissory note, it is clear that there should be an undertaking to pay money. That undertaking should be free from any type of conditions. If the undertaking is subjected to some qualifying conditions, the instrument loses its validity as a promissory note.

4. Express Declaration

There must be an express declaration or promise to pay the money to the payee. A mere implied undertaking will not qualify the instrument to be a promissory note. The declaration must be on the face of the instrument. It should be clear to whom the amount is to be paid and how much amount is to be paid.

5. Payee Is Certain

The payee should be a certain person. The instrument can be rightly called a promissory note only if a payee ascertained by name or designation is provided.

6. Amount is certain

In a promissory note the amount is certain. It should be a figure which can be calculated. Uncertain sum entered will not make an instrument a promissory note.

7. Mode of payment

The payment has to be in terms of money. Any other thing than money is not the medium of payment with respect to a promissory note.

5 thoughts on “No Worries in Trust Deed Investing”

  1. Mike Cleveland

    What about defaults? When an investor has invested money in a trust deed and the borrower defaults, is the investor responsible for attempting to get his funds back through foreclosing? If so I’m sure this would get very expensive very quick.

    Hi Mike: for some reason your question did not come through to us. However, you are right, if the borrower defaults, we start the foreclosure process. During this time you are accruing default interest, and out of 10 defaults we have recovered 100% of the default interest and late fees for the investor on 9 of them. A foreclosure costs between $1200 and $3500 typically, and part of that would be the funds for paying the real property transfer tax and trustee sale guarantee (title report). At the foreclosure auction either someone will buy the property and you will get paid back everything you are owed, or the property will revert back to you. We then have a full team that will get the property cleaned up and ready to sell. We can list the property and handles the offers for you at a discounted rate. Bottom line, we want you to recover 100% of your principal, default interest, and late fees, and so far we have been pretty consistent on accomplishing this.

  2. Are there any fees for the investor or do they receive the interest rate you post as net to them. Ex. you say 12%. Is it 12% net or 12% minus setup fees etc.?

    1. The fees that are listed on the portal are net to the investor. However, please see recent emails sent to all investors explaining that the new loan servicer did it wrong on the first group of loans, and they are now fixing the way they are taking the fees out of the investor’s portion, as they should not be doing that, and they are. We quickly noticed it and notified them.

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