Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
A loan made to an individual or a business can be secured by real estate or real property. This is also called real estate lending, or trust deed investing. A trust deed is recorded, putting a lien on the Title to the real estate. This serves as the security for the loan. But what are the risks of trust deed investing?
Trust Deed Investing is not easy, as it requires knowledge of real estate, and in some cases, property management experience. Should the borrower not repay the loan, there is a risk of foreclosure. Depending on which State the real estate is located, the foreclosure process can be fast or slow. Once you are able to successfully take the property back, then you must market it and sell it.
Have you done any trust deed investing yourself? What are the biggest risks? How have you or others mitigated these risks?
Deed/lien not properly perfected or made
The loan was made illegally
The wrong legal description was used on the DOT
The borrower stops paying
Costs of judicial foreclosure if contested
Improper escrow management
Documents at closing not properly completed or not in compliance
Cloud on title, borrower not having good title
Accounting errors in payments from previous note holder
Loss of collateral and not properly insured
Insurance policy has no loss payee clause for the note holder
Note purchase not in compliance, note not endorsed
Death, incapacitation of borrower
Bankruptcy
Tax/workmen's/material liens created
Failure to comply with applicable laws for the note holder
No lender's title coverage
Survey issues or encroachments
Assuming all sales proceeds from foreclosure go to the note holder
Just off the top of my head. Now, consider that having two or more such issues together is not uncommon!
Best way to avoid issues is due diligence with experience.
No idea what the gurus are selling, I prefer to teach conventionally without sizzle, just the steak, the meat, I'll leave desert for others. LOL
Another thought as I remember what I forgot, is with small amounts you can buy liens. Get with some small contractors, they do a job and they can finance part of it. The work is a workmens lien and is an exception to minimum loan amounts secured by real estate. You can buy their potential lien or lien at a discount and receive the payments from the owner for the work performed. :)