List of US states that use trust deeds, list of states that use both deeds of trust and mortgages and a list of states that use mortgages.
Trust Deed States
Alaska
Arizona
California
Mississippi
Missouri
North Carolina
Nevada
Virginia
Washington DC
States that use Both Deeds of Trust and Mortgages
Colorado
Montana
Texas
Idaho
Nebraska
Utah
Illinois
Oklahoma
Wyoming
Iowa
Oregon
Washington
Maryland
Tennessee
West Virginia
* Georgia uses a security deed
** Custom dictates which document is used
Mortgage States
Alabama
Louisiana
North Dakota
Arkansas
Maine
Ohio
Connecticut
Massachusetts
Oregon
Delaware
Michigan
Pennsylvania
Florida
Minnesota
Rhode Island
Hawaii
New Hampshire
South Carolina
Indiana
New Jersey
Vermont
Kansas
New Mexico
Wisconsin
Kentucky
New York
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Trust Deed Investments Risk Analysis |
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Written by Trust Deeds
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Friday, 11 April 2008 |
 There is a great deal of interest in trust deeds these days due to the amount of money that can be made from them. Most experts agree that there is more money to benefit from than with the stock market. There is a risk though but it is less than what is taken on in regards to many other types of investments. Taking a realistic look at the entire process and what is involved can help you to decide if it is something for you to consider investing in.
One of the most appealing aspects of trust deeds is the fact that they can offer such a high rate of return compared to their risk analysis. If you aren’t familiar with them, trust deeds are similar in nature to a regular mortgage. There are some differences though that you need to be aware of. The main one is that with a regular mortgage you have two parties involved – the borrower and the lending entity. With a trust deed though you have three parties with the addition of a trustee.
It is very important to understand what a trustee entails as well as the responsibilities involved. This third party is going to hold the title to the property that is involved on for the lender until the amount of money that is due on the real estate has been all paid for. This is a legal process that is recognized in a court of law and will be upheld. In the event that a borrower doesn’t pay the loan as they agreed then the lender will step in and foreclose on the property.
There are a couple of different ways in which an investor can get themselves involved with trust deeds. The process will either involve making a loan for real estate directly, or by purchasing a promissory note that already exists from someone else. Investors can cover the entire balance on the real estate or they can share that investment with many other people.
While many people are interested in trust deeds due to the fact that there are great returns on the investment, generally double digits of from 10% to 12%, you don’t want to just rush into this type of investment. Instead you need to make sure you have all of the right information. Otherwise your desire to make money is going to cost you what you have invested instead.
While doing your research about trust deeds, you will come to learn that the value of the property that is involved is crucial. Should the borrower default on the loan then the lender can take possession of it. However, if the value of it on the market is less than what is owed on it you may end up taking a huge loss instead of making money.
Before you move forward, you should request what is called the Preliminary Title Report on a given property. This information will tell you want has gone on in the market over the past three months. That way you can assess the risk that is involved with that property. You want to find out what the current value of it is from an appraisal. You also want to find out how accessible the property is from public roads and any other things that might pose a problem to you being able to get what you invested out of it (for example, as outlined by the California Department of Real Estate (CDRE).
Understanding the risks involved with trust deeds is something you want to fully understand before you are a part of one. Too many people learn the hard way because they are only seeing that they can make a huge profit from it. That encourages them to invest their money without having a firm grasp on the facts. It is well worth it to carefully research the market value as well as the title status of any property you are thinking of investing in.
Keep in mind that there are plenty of variables that can affect what you find out right now too. For example the economy can change and that may mean what seemed like a good investment at the time becomes one that doesn’t pay off in the long run. Most people don’t realize that trust deeds aren’t FDIC insured and so they are extremely upset when they discover that fact after they have invested their money in a deed trust.
Another variable that you can’t foresee is the borrower filing for bankruptcy. This can put a halt on the efforts to foreclose on that property. Investors often find in such a scenario that they end up spending a large sum of money to cover the various legal fees that are involved. Sometimes though these legal proceeding can work in the favor of the investors so that money isn’t always a waste.
For example the court could decide that the terms of the loan can be changed from the original agreement. Extending the length of the loan, reducing the interest rate, or modifying the structure of the payments can all make a huge difference for the borrower. What may have seemed like a situation they couldn’t resolve may now have a viable solution that everyone involved is going to be happy with.
You will also find that there are different types of trust deeds that you can invest in. With a whole trust deed you can invest 100% of the purchase for that trust deed. This means you would be the only one with a claim to ownership of it in the eyes of the law. What the lender will have is a promissory note that that will turn over to you once you have given them the funds. It is important that they also provide you with documentation that there is adequate insurance on that real estate as well.
It can take a large sum of money to cover a whole trust deed. That is why you will find many investors choose to go with fractionalized trust deeds instead. This allows quite a few investors to come up with the funds to get the trust deed. Each one puts up an equal amount of money for it. However, this also means that the earnings are divided equally among each of the investors as well.
Fractionalized trust deeds generally have 10 or less people that invest in each one of them. There can be some sticky situations that arise though if the borrower defaults on the terms of the original agreement. However, this is a great solution for the investor that has some money to invest but not enough to cover a whole trust deed on their own at this point in time.
You may be familiar with the term mortgage pool as it is similar to what you get with a mutual fund. In mortgage pools, it is deeds of trust that are held, rather than stocks or bonds. Those that choose to invest in them are partners, but in limited ways due to the investments that they choose to diversify. Instead of having only one or two trust deeds that they are part of, they cover many of them. This can be a wise business strategy though because it definitely decreases the risks involved.
There is also an important decision to make about investing in first or second deed trusts. With a first deed trust you will be the number one person on the claim for it. The risk is less than when you go with a second trust deed claim. When you are second in line, then any claims by the first holder have to be honored before yours. Sadly, what can happen is that there isn’t enough money for both claims to be satisfied. As a result you may only get a portion or nothing at all.
It is in your best interest for the funding you offer as an investment when you buy a trust deed or you buy a promissory note to be done through an escrow account. There are specific conditions for this that need to be met. That way the money that the borrow pays into their account can be recorded, and the necessary payments released for taxes, insurance, and your part of the interest that is earned through your investment.
Your best method of locating quality trust deeds to invest in is through a mortgage loan broker. It is important that you take your time to choose such a broker carefully. Find out what their background is, how long they have been in the business, any complaints on record, and even how many of the loans they have approved that ended up with a foreclosure process as part of it. Both the Better Business Bureau and the real estate board in your area can offer you plenty of information so take the time to find out.
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