What is a trust deed and what is the difference between a mortgage and a trust deed?
Trust deeds and mortgages are used in bank and private loans for creating liens on real estate. Both are typically recorded as debt in the county where the property is located. However, a mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and a title company, escrow company or bank, called the trustee. The trustee holds title to the lien for the lender's benefit; its only function is initiating and completing the foreclosure process at the lender's request.
Mortgages and trust deeds have different foreclosure processes. A judicial foreclosure is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive. In addition, if the lender does not bring in enough money from the auction to pay off the promissory note, the lender may file a deficiency judgment against the borrower, suing for the balance. However, even after the property is sold, the borrower has right of redemption: he may repay the lender within a set amount of time and acquire the property title.
In contrast, a trust deed lets the lender commence a faster and less-expensive non-judicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, the property is put up for auction through a trustee's sale. If the real estate is sold, the title is transferred from the trustee to the new owner through a trustee's deed. If there are no bidders at the trustee sale, the property reverts back to the lender through a trustee's deed. Once the property is sold, the borrower has no right of redemption.
Am I required to check the borrower’s credit report?
You are not required to check the borrower’s credit report.
What happens if the borrower stops insuring the property?
If the borrower stops insuring the property, the underlying collateral securing your loan (the property) is at risk of loss due any number of issues that would have been covered by the insurance policy, such as, fire, natural disaster, vandalism, etc… depending on the insurance policy. As the lender, you can choose to:
- Send a demand letter to the borrower to insure the property;
- Insure the property yourself;
- Foreclose on the property as an event of default under the loan agreement; or
- Risk the loss to the collateral securing your loan.
What happens if the borrower stops paying taxes on the property?
If the borrower stops paying property taxes on the property, the state or municipality may place a tax lien on the property. A tax lien is superior to a mortgage or trust deed. In the event a tax lien is foreclosed upon, all inferior liens are extinguished upon foreclosure.
A lender may choose to pay the delinquent taxes because the amount of delinquent taxes is far less than the mortgage or trust deed on the related property. A lender may also foreclose on the property as an event of default under the loan agreement.
What is a performing note? What is a non-performing note?
A performing note is one where the payments are made on time by the homeowner to the note holder. A non-performing note is essentially a note that is in default and can no longer expect repayment against the original terms of the note.
What does “hard money” mean?
A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans, starting at 7.7%, because of the higher risk and shorter duration of the loan.
Can I buy another loan from Insider’s Cash?
No. Insiders Cash no longer makes loans.
The loan I own is delinquent, what should I do?
If you purchased a loan from Insider’s Cash, it is secured by a recorded mortgage or trust deed. Consequently, you may foreclose on the real estate secured by the recorded mortgage or trust deed. Additionally, if the borrower is willing, you may negotiate a cash for keys, or deed-in-lieu of foreclosure with the borrower to obtain the property without incurring foreclosure costs.
You may engage a law firm of your choosing to assist you in the foreclosure process.
Is the loan recorded in my name as the lender?
Depending on when you purchased a loan and whether or not you followed the instructions provided in the documents given to you at purchase, the loan may or may not be recorded in your name.
Originally, a loan originated by Insider’s Cash was recorded in Insider’s Cash’s name. if you purchased an assignment of a loan, you purchased the rights to the loan which included the rights to record the interest of the loan in your name or your entity’s name.
If you purchased your loan after July 1, 2016, as an added service, the title company recorded the trust deed or mortgage deed at the county in your name or your entity’s name.
If you have not recorded your loan in your name or your entity’s name, you can do so at any time. You can use a title company or you can prepare the assignment documents on your own. The information needed to record the loan at the county in your name or your entity’s name is included in your original purchase documents.
How do I record the mortgage in my name?
You will need to use the assignment documents that were issued at the time of your purchase.
Any title company can assist you in this effort. If you need assistance, please email and we have arranged for a title co to answer specific questions about this process and can, for a fee, assist you in recording your transaction.
Can I sell my loan?
You may sell your loan to another buyer. You are responsible for finding the buyer and managing and executing the transaction. If you do sell your loan, it is recommended that the loan is recorded in the new lender’s name at the county. Please also contact Note Servicing Company to ensure that the servicing of the loan is properly transferred to the new owner.
When does my loan mature?
You may contact Note Servicing Center for your loan maturity date.
How do I liquidate my loan?
In order to liquidate your loan, the borrower must either pay-off the loan or refinance the loan. Additionally, you can sell your loan to another buyer.
Can I transfer my loan out of my IRA into my personal name or LLC without paying a tax or penalty?
Generally speaking, an IRA account holder cannot transfer an asset to the account holder’s personal name or an entity in which the individual owns 50% or more without paying a tax (see IRS FAQ regarding prohibited transaction - https://www.irs.gov/retirement-plans/retirement-plan-investments-faqs. Please contact your IRA custodian and/or tax accountant to determine whether you can transfer the asset without paying a tax.
My loan is maturing, what can I do?
If your loan is maturing, the borrower can pay-off the loan, refinance the loan, or you can offer a loan extension to your current borrower. All of these options are dependent upon the borrower’s willingness and ability to perform one of these options. If your borrower is current on payments, you may want to consider offering a loan extension to your borrower. To offer an extension, it is recommended you use a title company or attorney to offer, negotiate and execute an extension.
If you want help with an extension, we have arranged for a title company to work out these details for you for a fee. The fees are generally $500.00 and are required to be paid up front by the lender but could be reimbursed by the borrower at closing.
Email email@example.com and your email will be replied to by a title company to assist you.