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If you are planning to invest in a turnkey real estate development backed by real estate, one of the most important items on your due diligence checklist should be determining what mortgage theory the state follows based on the location of the property in question. Understanding this can adversely affect your recovery strategy if your borrower cannot meet their end of transaction and defaults on the loan. Each state adheres to either title theory or lien theory, although there are some states that follow both. In title theory states, deeds of trust are the binding agreements between lenders and borrowers, and mortgages are the agreements used in lien states. Both documents serve the same purpose in a real estate deal between a lender and a borrower, but how they affect the relationship between the parties involved and the property in question makes all the difference.
What Are Some Similarities Between Trust Deeds And Mortgages?
Mortgages and trust deeds both secure the repayment of the loan by creating a lien on the property and are considered evidence of debt by law as they are generally recorded in the district where the property is located. If the borrower is in default with the loan and the lien is paramount, the lien gives the lender the right to take back and sell the property through foreclosure. In other words, both mortgage and trust deeds are used as leverage to ensure that the borrower pays back the loan in full. The ability to sell the property gives real estate investors and lenders the opportunity to get the original loan back. Depending on the value of the property, there is the option of reclaiming interest arrears, interest on arrears and even capital gains.
What are the main differences between trust deeds and mortgages?
Number of parties
There are two parties involved in a mortgage: a borrower (the mortgagee) and a lender or investor (the mortgagee). There are three parties involved in a trust deed: a borrower (the trustor), a lender or investor (the beneficiary), and the title company or trust company (the trustee). The main functions of the trustee are to hold the lien in favor of the beneficiary and to initiate and complete the foreclosure proceedings for the beneficiary if the trustor is in default.
Title of title and foreclosure proceedings
The main difference between trust and mortgages is who holds ownership of the loaned property for the duration of the loan term. In a mortgage state, the borrower owns the property. Therefore, if the borrower defaults on the loan, the lender must search the courts to take the property back through foreclosure. This is known as foreclosure and involves the lender filing a lawsuit against the borrower. This can be a costly and time consuming process for both parties.
In a trust treaty state, the court can be bypassed as the trustee owns ownership of the property. You would follow the out-of-court foreclosure process, which almost always results in faster execution and resolution for everyone involved, especially the lender. The speed of foreclosure can have a detrimental effect on minimizing storage costs and bringing the property to market quickly in what may be a more promising market than at a later date.
Was sind First Trust Deeds?
An initial trust deed is, as is implied, captured first before any other financial liens on the property in question, be it secondary mortgages, trust deeds, or even mechanical liens placed by subcontractors. This means that the First Trust Deed has a senior or “senior” position so that all other liens encumbered by the loan are subordinated or “subordinated” to the senior loan. Earning the first position is important because a foreclosure scenario will remove any outstanding minor liens. This makes it so that the lender doesn’t have to worry about paying these other debts in addition to his own.
Why Invest in Trust Deeds?
Coin lender, like Encourage funding, tend to lend more in trusts. Fiduciary investments Ignite Funding offer investors an attractive, relatively low risk return due to their priority lien on the property and foreclosure process that is more conducive to the investors who are the beneficiaries of the loan. This enables investors to earn double-digit annualized returns with REAL real estate as collateral, paid as monthly fixed income.
If you are interested in becoming a Trust Deed investor or want to learn more, send the word “Investments” to 844.552.7022 or you can CLICK HERE to schedule a FREE consultation appointment based on your needs.
Ignite Funding, LLC | 2140 E. Pebble Road, Suite 160, Las Vegas, NV 89123 | P 702.739.9053 | T 877.739.9094 | F 702.922.6700 | NVMBL # 311 | AZ CMB-0932150 | Money invested through a mortgage broker is not guaranteed to earn interest and is not insured. Corresponding disclosure documents must be made available to investors prior to investing.
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