Understanding Documents and Processes: Deed of Trust

In many cases the Deed of Trust is presented as an “offering” by a party that has an interest in presenting the investment in the best possible light through a sales department or Broker, both of which are commissioned on the dollars brought in.   In this quest to get the dollars from the investors to earn the fees, many times the documents and process are over-simplified to reduce objections and shorten the fund raising process.  Missing, inadequate documentation in Trust Deed investing carries a high potential for unnecessary litigation and or principle loss from the investor if the borrower defaults or the Mortgage Broker closes its doors.

The documentation an investor needs generally falls under one of a two categories; Borrower and Property.

Borrower documents include;

  1. Completed loan application,
  2. Credit reports, credit history verification or references,
  3. Income documents, financials, Tax Returns,
  4. Use of Funds plan (from the proposed Deed of Trust),
  5. Exit strategies verification.

Property documents include;

  1. Complete Title Report – history of ownership and lien amounts.  Make sure that the tax and any HOA amounts investor analysis.
  2. Complete Appraisal or valuation model,
  3. Existing documents attached to the property, bids, permits, ect..

If any document is not understood, it should be explained to an investor by the borrower, escrow or an attorney.  In many ways an investor needs to be able to verify the same “story” with documents from a variety of sources.


Investors should have an understanding of what to expect from all the interested parties in the investment.  The three most important processes for our purposes are:

  1. Starting the investment; make sure to understand all the documentation you need and that the correct people have the information about the investor.  Entity name correctly on the Deed, date that the interest starts and when the loan will fund.
  2. Updates on the progress of the investment, who, when and from whom?
  3. Exiting the investment, Where and when the return of capital is expected to come from and what is the scheduling a payoff to the investors.
  4. Defaults and options. When a borrower defaults on a loan there are a few options for the parties involved.  The borrower may simply give the collateral back to the investor in a ‘deed in Lue of Foreclosure’ or a document as simple as a ‘Quit Claim Deed’.  In the event the borrower is not cooperating with the investors in the Deed of Trust, foreclosure may be the next option if the borrower has not put the property into a Bankruptcy protection plan.

One of the strengths of typical Real Estate transactions is that under normal circumstances all the information and history is readily available to the general public through regional public recordings so an investor may access much of the transactions data on their own

Investing in Trust Deeds and Real Estate is an excellent way for investors to diversify off Wall Street and participate in the rebuilding of local communities from the financial crash with security and high returns on the investment.  It is the hope that by sharing information on a relatively small but growing private investing world, new investment opportunities and possibly industry standards will emerge that perhaps more reasonably benefit all parties in a Trust Deed investment.