Investing in Trust Deeds
What is a trust deed? Trust deeds are a type of legal instrument used in real estate. They establish a security interest in real property. In a trust deed, legal title to a piece of real estate is transferred to a trustee who holds it as security for a loan. You can use trust deeds to transfer property to loved ones or to fund a college education.
A trust deed, or “Deed of Trust,” is a contract that transfers legal title to real property to a third party (the Trustee). The Trustee holds the property until the loan is paid in full and then gives ownership to the borrower. This process ensures that both parties are protected. Regardless of whether the borrower defaults on the loan, the trust deed is a legal document that is still recognized in most states.
Investing in trust deeds can provide a healthy return, but the rate depends on the type of property, the agreement and the parties involved. Although a return of eight to twelve percent isn’t guaranteed, the risk associated with this type of investment is lower than many other investment opportunities. In addition, trust deeds require a substantial amount of due diligence. However, they offer significant returns. The risk of an investment in a trust deed can be mitigated by good borrowers.
A trust deed is used in more than twenty states, although it is not required in every state. The difference is primarily in the process of purchasing a home. A trust deed can also serve as a legal protection for lenders. However, you must first sign a promissory note to make the deed effective. The promissory note details the terms of the loan. Once a borrower has signed the promissory note, the trust deed will be valid.
A trust deed is a contract between three parties. It identifies the property, names the parties involved, and specifies the terms of the loan. In the event of a default, the deed will dissolve and the lender will own the property free and clear. At this point, the borrower must make the payments stipulated in the trust deed or the lender can instruct the trustee to sell the property. A trust deed is a very flexible loan instrument that allows for both parties to benefit from.
While a mortgage is legally binding, a trust deed is a much simpler and less costly way to reclaim the property if the borrower fails to make their payments. While a mortgage requires the borrower to go through a court process, a trust deed allows the trustee to pursue a nonjudicial foreclosure process. This process is faster and less costly for the lender. When there is a default, a trustee will hold the property title and sell it as a means of recouping the money owed.
Investing in Trust Deeds was first seen on Pathway IT