The California Bureau of Real Estate, along with other state agencies, make provisions for real estate Investors to fund loans and mortgages through the purchase of Promissory Notes that are secured by a Deed Of Trust (or referred to as Trust Deed in some states) recorded against the title of the Borrower’s property. The Promissory Note identifies the Borrower and the Lender Or Note Holder along with all the terms and conditions of the loan. As with any lending, Trust Deed Investments have their inherent risks not limited to loss of capital, delays in getting paid according to the terms of the Note or default by the Borrower. This is the primary reason to have Enact Partners on your side: to present sound investment opportunities, perform all vetting and due diligence, service your investment and monitor the cashflow coming back to you on your investment.
We perform intensive due diligence to select trust deed investment opportunities that are sound for you as an Investor. Once we find an opportunity that fits our investment criteria, you will receive an email with an Executive Summary which will briefly describe the Borrower, the loan terms and the property that serves as the security for the loan.
We encourage you to analyze the details in that Executive Summary so that you can decide if the investment opportunity is right for you. All of our Investors will receive and sign a non-binding commitment letter as an expression of interest. You'll be invited to join an on-line repository that contains the due diligence materials. This includes, in part, an appraisal or an opinion of value, preliminary title report, and Borrower's loan application, and much more.
If you decide to proceed with investing in the opportunity, you make a "soft commitment" and is subject to your review and satisfaction of the due diligence materials. All investors will finalize their own due diligence review and notify us about their interest to invest or otherwise.
Escrow Opens, the Borrower signs loan documents, and all investors who decide to participate in the promissory note will sign Lender documents and disclosures. Investors will receive wiring instructions directly to the escrow/title company. Once escrow/title has received Investor funds and title is clear, title will record the 1st Trust Deed at the County Recorder Office (i.e. "the closing").
We will facilitate third party loan servicing with a licensed loan servicer. The loan servicer will collect Borrower's monthly payments and disperse to each Investor via check or direct deposit. You will receive Borrower payments directly from the loan servicer on a monthly basis. The loan servicer will also provide year-end tax documents to all of our Investors which show the amount of interest received. As an Investor, you will be provided with access to a secure online portal where you can monitor all your investments. In addition, we provide monthly Investor Summary Statements which help each Investor track and monitor their investment portfolio.
If you are a knowledgeable Investor, you’ve probably heard at least a little about trust deed investments. Yet, you may not be all that familiar with how this type of investment works or the particular advantages that it currently offers. At Enact Partners, we strive to educate and inform Investors on high-yield, trust deed investment programs for private individuals.
In the simplest of terms, trust deed investments are loans secured by real estate. These investments are typically short term loans (maturing under five years, with many less than two years). Our typical loan terms range from 6 to 36 months.
The Borrowers who seek these types of loans are typically very experienced in generating large returns on buying and selling real estate. They are willing to pay a higher interest rate because they hope to make a return of 20 to 50 percent return on their investment.
Banks are highly regulated institutions that devote a considerable amount of their efforts in evaluating Borrowers’ credit risk prior to extend long-term loans. Real estate Investors who flip houses typically plan to pack back a loan within 12 months. When you consider the process a bank uses to underwrite a Borrower, you can begin to see why it’s not profitable for them to offer a loan that is paid back in such a short period of time. They make the highest amount of profit on loans that will be outstanding for 20 or 30 years, not 365 days or less!
There are many options out there for savvy Investors that offer a wide variety of returns. Yet, many Investors are drawn to trust deeds because of their current yield and low risk. It’s typical for trust deed Investors to earn high single-digit annual returns, paid monthly. Returns are comparable with other types of investments with similar risk profiles.
The fundamental concept of trust deed investing is that the lender can foreclose on a property and sell it to recoup the investment if the Borrower doesn’t pay back the loan. If the property value is relative to the loan amount, the Investor will not lose money even if the Borrower defaults on the loan.
However, there are some important considerations. Unlike some investments, trust deed investments are not liquid. Investors need to be willing to be able to stick with the investment until either the Borrower pays off the loan or defaults. Due diligence is vital to minimizing risks such as unanticipated legal disputes involving the property. It is wise to work only with a trusted, experienced broker with a track record of successful, well-structured trust deed investments.
In trust deed investments, a promissory note is the written promise that a Borrower will pay a certain amount of money at a certain time, or in a certain number of installments to a named person (the lender). The Borrower becomes obligated to repay the debt by signing the promissory note which details the amount of the loan (principal), the amount and frequency of payments (debt service), when the Borrower must repay the principal (due date), and the penalties imposed if the Borrower fails to pay in a timely manner (late charges). You can become a lender or note holder and obtain a promissory note by either making a loan or purchasing an existing promissory note.
The Borrower’s property serves as collateral, as the investment is secured by a deed of trust recorded against the title of the property. Once the obligations of the loan have been satisfied, the Borrower either sells or refinances and pays back the Investors and the deed of trust is reconveyed. In the unlikely event that a Borrower defaults, the foreclosure sale is used to satisfy the debt.