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Trust Deed Investments

Trust deed investments are loans secured by real estate, commonly known as “mortgages.” Herzer Financial Services originates trust deed investments, typically called “hard money” or “private money” loans because they are generally loans a bank will not make. This does not necessarily reflect more risk. For these investments, the investor’s name is recorded on the title to the property as an owner of the loan.

Three components comprise trust deed investments:

  • Promissory Note – similar to an “IOU,” this outlines the interest rate, repayment terms, and conditions of the loan. Promissory notes are legally binding contracts that can be used in a court of law if the borrower defaults on the loan. Essentially, these notes demonstrate responsibilities and obligations of the borrower.
  • Deed of Trust – a written instrument that legally conveys property to a trustee, and which is used to secure an obligation, such as a mortgage or promissory note. It contains three parties:
    • The Trustor or borrower
    • The Trustee–an entity that holds legal title, generally a title company that holds the “Power of Sale” in the event of default
    • The Beneficiary, which is the lender
  • Title Insurance Policy – a policy issued by a title insurance company that insures a lender’s priority of position in the chain of title.

Benefits of Trust Deeds

Trust deed investments enable strong returns and are a secured investment. Trust deeds are significantly safer than investments of comparable yield because their risks are identifiable, and so are the procedures necessary to counter them. Trust deeds are a popular choice to diversify a portfolio. Also, trust deed investments are straightforward and easy to evaluate, unlike publicly-traded, real estate-related securities.