Chapter 2

The Basics of Trust Deeds

At this point you know that a trust deed is one of the safest investments you can make that offers you a high return, but what exactly is a trust deed?  A trust deed, or deed of trust is a document that is used to secure the debt on a home acting as a mortgage.  A trust deed is recorded as a lien on real property.  However, although a deed of trust acts like a mortgage, it is important that you understand there are differences between a mortgage and a deed of trust.  These differences will be discussed later on in this chapter.

A trust deed is used as security for a loan on real property, and the specifics regarding the loan are written in a promissory note.   A deed of trust is then documented at the county recorder’s office to legally notify the world that the property in question has now been pledged to secure a loan.

There are three parties involved in a trust deed:

1. Beneficiary – Investor/Lender/note holder

2. Trustor – Borrower

3. Trustee – Third party selected by the investor who has the legal power to act on the investors behalf and hold title until the note has been paid.

What secures a trust deed investment?

When making a trust deed investment, the deed of trust recorded against the borrower’s property title is what secures the lenders investment.  When making an investment in a deed of trust, the trustor (borrower) makes the property transfer, in trust, to the trustee (independent third party).  The trustee then holds the conditional title on the behalf of the beneficiary (investor/lender/note holder), and then either of the following takes place:

1. The trust deed will be returned to the borrower once they satisfy all of the terms and conditions that were outlined in the promissory note

1. The property will be put up for sale should the borrower default – also known as foreclosure.  Foreclosure is the process that is taken by the investor in order to sell the property to a bidder from a third party, or to obtain title to the property.  Usually the foreclosure sale satisfies the debt that is owed to the investor.

The difference between trust deeds and other investment types

What is the difference between a mortgage and a deed of trust?

The following are the basic differences between a mortgage and a deed of trust:

® Only two parties are involved in a mortgage document – the lender and the borrower.

® Three parties are involved in a trust deed – the lender, the borrower and the trustee.

® With a mortgage document foreclosure the state law will determine the foreclosure method that will take place, which can sometime involve a lengthily process.

® A deed of trust usually involves a quicker foreclosure, because the most common type of foreclosure is a non-judicial one.

The different between investing in a deed of trust and the stocks

® The value of a stock fluctuate hourly, and sometimes by the minute.

® The value of a deed of trust is fixed and is always stable.

® An owner of stock is in third lien position.

® The owner of a trust deed is generally first or second in regards to the lien position.

® Every stock investor is charged a fee from their stock broker.

® A trust deed broker often charges investors no fees.

® Stocks can be purchased and sold through brokers.

® Trust deeds, on the other hand, are purchased and sold through brokers, but can also be purchased and sold privately at no extra charge.

® The security position of the stock owner is shared among thousands of other holders.

® The security position of the owner of a trust deed is not shared with anyone.

® A is supported by conglomerate properties and equipment that are often from foreign countries (ex. warehouses, factories, port facilities, mills, ships, etc.).

® Deeds of trust are only collateralized by real estate that occurs within the U.S., and usually by homes that are within the local area of the investor.

® A stock is a gamble.

® A trust deed is an investment

Although it is evident that there are many differences between trust deeds and other types of investments, one thing is for certain – a trust deed is an investment opportunity that offers you a high return with less risk.