Frequently Asked Questions Regarding Trust Deed Investing
What types of investors participate in the trust deed investments?
Individuals, Family Trusts, Corporations, Self-Directed IRA’s, Keoghs, 401K Plans, REITS. Limited Partnerships, Pension Plans and
other entities may invest in the Fund.
What are the benefits of Trust Deed Investing?
Generating high returns, consistent cash flow, and capital preservation while
owning an investment that is secured by real property are a few of the benefits
of Trust Deed Investing.
What are the primary risks associated with Trust Deed Investing?
The risks can be narrowed to 3 areas:
First, risk of devaluation of the property value. An erosion or loss of protective equity can affect the Trust Deed investment. If protective equity is lost, then loss of principal in the Trust Deed could occur. This is why the LTV and protective equity are so important in Trust Deed Investing.
Second, in the case where a junior mortgage is owned, and a foreclosure action is initiated by a senior mortgage, this could threaten the security of the Trust Deed. It is important that these filing actions are monitored regularly since at such time a senior mortgage initiates a Trustee Sale (auction), a junior mortgage could potentially occur loss due to the bidder(s) at the sale not bidding a high
enough price for the property being sold.
Third, a legal action (Action of Notice) recorded against the property or that has identified the property in an action could threaten its negotiability. This can create a cloud on title potentially preventing a mortgage note holder from selling the property or proceeding with a foreclosure action. In short, a legal action as well as legal proceedings in general, ties up the property and all parties involved with the property until such time the legal action has been resolved, rescinded or cancelled.
What Measures Does Mortgage Loan Solutions Take to Prevent or Minimize Risk?
Mortgage Loan Solutions takes several steps and precautions to minimize risk and to protect investor capital. From the initial stages of making a loan or investing in a Trust Deed, MLS will verify that each property has sufficient protective equity. This is achieved by having the property appraised or by establishing value with comparable sales. The Loan-To-Value Ratio will be determined on each and every
property considered for the fund.
MLS further mitigates risk by regularly monitoring all other pertinent criteria including whether all mortgage payment histories check with public records. This is done monthly to determine if any Foreclosure actions have been initiated. If a foreclosure action has been started by a senior mortgage holder, The Fund will cure the defaulted payments and have the foreclosure rescinded. MLS would then
initiate a foreclosure action to protect its interests.
Mortgage Loan Solutions cannot prevent a legal action from being initiated. Due to our strict selection criteria, a legal action involving the properties that the Fund holds Trust Deeds against is a very rare occurrence. In the unlikely event that a Notice of Action is filed, the
What happens if a Foreclosure Action is initiated? How long does this last?
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Why are the interest rates for Trust Deed so high?
Mortgage Loan Solutions arranges mortgages for property owners with sub-prime credit. Most of the borrowers that are obligated under the terms of the promissory note did not have the best credit or requested the loan requiring the money fast. There are several reasons why thousands of borrowers take out sub-prime and Private Money Mortgages each year. Poor credit is not always the main
reason.
Why are Trust Deed Investments not a mainstream investment?
The Private Mortgage Lending market evolved to meet the needs of borrowers who could not obtain loans or mortgages from traditional sources such as banks, savings and loans, mortgage companies or credit unions. The majority of the Private Money Trust deeds made are created by small mortgage companies. The Trust Deeds are not typically sold or securitized on the secondary mortgage market like most conventional mortgages. Therefore, these loans cannot be sold and traded like all other types of investments and are not attractive to large corporate companies to market to the masses as a mainstream investments.
Is this investment FDIC Insured?
An investment in trust deeds is not FDIC insured.