Before you begin Investing In Deeds Of Trust, you should understand how these agreements work. They are not really the same as investing in a mortgage loan.
It is essential to investigate any type of investment before you commit your hard-earned money. And while many investors think that a deed of trust is the same as investing in any private real estate loan, that is not the case. When you are investing in a deed of trust, you never actually hold the title to the property as you would with a mortgage loan. In these deals, there is an impartial trustee who is responsible for the property until the loan is paid off.
The impartial trustee must always be prepared to sell the property if the borrower defaults on the loan. And because the trustee is unbiased, he or she never favors the interest of the borrower or the lender, ensuring that the transaction is fair to both parties. In addition, the foreclosure process involving a deed of trust is not conducted in the same manner as a traditional mortgage default. Conventional Loans require judicial supervision for a foreclosure while the trustee on a deed of trust does not. This makes the sale process much less complicated, which is a benefit for anyone who is Investing In Deeds Of Trust.
When there is a foreclosure, the trustee must sell the property and then distribute the funds to the lender and the borrower. The lender is repaid the full amount that he or she is owed according to the loan agreement, but the remaining funds are then given to the borrower. This is because the borrower retains the title to the property. In the case of most personal real estate Loans, when the borrower defaults, the collateral or in most cases, the property is passed to the lender in place of repayment of the loan. At that point, the lender owns the entire property and can sell it and keep the full sale amount. The lender who was in default has no right to any of the sale money.
Other Differences Between Mortgages And Deeds Of Trust
Mortgages have specific legal requirements that are not met by a deed of trust. And while this has some benefits for anyone who is Investing In Deeds Of Trust, it has some crucial factors that could be seen as a drawback for a borrower. Because this loan is not classified as a mortgage, there can be significant tax implications for the borrower. Many times, mortgage interest is tax-deductible, but the interest and fees on a deed of trust are not. Also, the trustee can liquidate the property much more quickly, which could work against a borrower who is trying to get caught up on payments.
Know Your Risks When Investing In Deeds Of Trust
As with any investment tool, every investor needs to complete his or her research before committing any money to an investment opportunity. The only way to decide which investment is best for you is to evaluate the risk involved and balance that with the potential financial return.
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.