A trust deed investment is used to increase the return on your money above what you would otherwise receive from a savings account or CD. If you want to get involved such investments, you need to understand the use of an assignment of deed of trust. In many states, such as California, a deed of trust is recorded against real property to secure repayment of a promissory note. A trust deed investment essentially involves purchasing a promissory note with the deed of trust securing the note assigned to you as part of the transaction.
Promissory Note and Deed of Trust
A promissory note is used when you receive a loan to purchase real estate. The promissory note will state the repayment terms for the loan, such as the amount of monthly payment and interest rate. A deed of trust is used to secure repayment of the promissory note when it is recorded as a lien against the real estate purchased with the loan.
Purchasing the Note and Deed
A promissory note can be sold by the lender. This often occurs between banks, but can be done by anyone who wants to purchase the promissory note as an investment. When a promissory note is sold, the deed of trust securing the note is sold with it.
You should only purchase a promissory note through an escrow which is opened with proper instructions that should include, among other things, the delivery and recording of an assignment of the deed of trust securing the note. The escrow instructions should also state that the original note and deed of trust be given to you as part of the transaction.
The transaction documents for purchasing a promissory note and deed of trust should include not only the assignment of deed of trust, but several other document to ensure that your investment in the note and deed is sound. You should have already obtained a credit report on the borrower to verify his credit worthiness and the likelihood that he will continue paying on the promissory note. A preliminary title report should be obtained to verify the ownership of the property and the existence of any other liens. An appraisal is also advisable to determine that there is sufficient equity in the property to secure the promissory note.
Recovering Your Investment
If the borrower fails to repay the promissory note according to its terms, the deed of trust securing the note gives you a strong legal remedy—non-judicial foreclosure. The distinctive feature of a deed of trust is the “power of sale” clause that authorizes the trustee named in the trust deed (usually a title company or mortgage broker) to sell the property at public auction when you inform the trustee that the borrower has defaulted on the promissory note. The power of sale clause is found in the original deed of trust that was assigned to you when you made your investment by purchasing the promissory note. A non-judicial foreclosure is a desirable remedy, because it does not require going to court and takes less time and is less expensive than suing the borrower.
About the Author
Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.
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