Can you use a deed of trust as collateral?

Question

Are there lenders that would use a deed of trust as collateral on a loan?

To give more details, I own a property free and clear, then seller finance it with a deed of trust (Texas). And then to free up my cash I would get a loan that uses said trust deed as collateral.

Jay Hinrichs · Answer

what your describing is a hypothecation..  and my commercial bank used to do those for us..

I would start there with a commercial / community bank where you get to know personally the folks that have authority to make loans to small business people .. not a bank that just puts you through a computer system.

I think you posted on this before about getting cash out of your notes and I think I responded with professional note buyers usually wont buy paper that is created in the scenario you describe.. at least not without a major discount.  One reason is they feel the property may have been sold for a premium over true cash value and your just pulling cash out.

but back to Hypothecation my bank would loan 50% of our note not to exceed 60% ARV with a third party appraisal.  And of course these were short term 24 to 36 months.. but in our bizz it worked great.. we did this on residual building sites we sold on contract after we logged the property.. So we usually had no basis in the land the Logs paid for the whole mary ann plus profit.. so we would sell a lot for say 250k which was pure profit and then borrow 125k against it so we could go buy more timber land .. probably did this about 10 times I think in 9 years.. But again this takes a very savvy banker who appreciates your deposit side of the ledger.. your not going to find a bank that will do this without ( IMHO) without a long standing relationship and a significant deposit relationship.

Derek Dombeck · Answer

Probably not many conventional lenders that would do it, but you could sell all or part of the promissory note that the Deed of Trust is securing. There's many note buyers looking for that. You will likely have to sell at a discount depending what the terms of the note are.