In 30 states, people can use a deed of trust as an alternative to traditional mortgages. These help the lender secure the promissory note from the borrower. With a deed of trust, lenders have the protection to take legal action if the loan isn’t paid back. As straightforward as it seems, it’s easy to get lost in the language and technicalities.
It’s important to know what you’re getting yourself into when investing in properties with borrowed money or funding the renovation of a property. In this article, we will provide a quick guide on how and when to use deeds of trust.
What Is a Trust Deed?
A trust deed, deed of trust, or individual trust deed is a document used between the borrower and the lender in real estate transactions. This document is presented when one party has taken out a loan from another to purchase or invest in a property.
The trust deed states that the property is under the ownership of a neutral party (the trustee) until the loan is paid in full. The document will include an outline of repayment terms, foreclosure procedures, the amount of money held in the trust, and property purchase details.
How Do Trust Deeds Work?
A trust deed is an agreement between the lender and borrower stating the property acquired with the loan is under third-party ownership until the loan is paid off. For trust deeds to work, the three parties involved must be present. These three parties include the following:
- The lender or beneficiary
- The borrower
The trustee is typically associated with an insurance company or bank. They facilitate the transition by staying neutral and independent. The trustee prepares the real estate documents, promissory notes, and other documents required for the transaction.
The Best Time To Use a Deed of Trust
You might wonder when to use a deed of trust. Trust deeds are your best bet if you’re pressed for time or looking for a quick house flip. The transfer happens fairly quickly if you have a diversified portfolio. Using a deed of trust can benefit you because you can likely purchase the property at a discounted price. The ultimate goal of a trust deed is to pay back the lender, so you purchase the property for a lower price than its listing.
At Val-Chris Investments, we want our clients to have the best experience investing in real estate, commercial, or mixed-use properties. Our team is here to help, whether you’re new to the game or have an impressive portfolio. We are a creditable trust deed investment company in California that is ready to make your dreams a reality. For more information, contact us today.