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CA BRE #01904379

NMLS/MLO #355855

Bond #92F388716F

Q: What are Trust Deed investments?
A:  Trust Deeds refer to loans, or promissory notes, secured by a deed of trust. While the promissory note spells out the loan amount and the terms for repayment, the deed of trust identifies the real estate that is the collateral for the loan and the right of the loan holder to obtain possession of the property if the loan is not repaid as agreed in the note. Most notes provide for the holder of the note to freely sell the note to another investor without obtaining the borrowers permission. The note can be sold at a discount to improve the return to the note buyer. It is important that the note and trust deed be sold together to maintain the security of the note.
Q: How do you calculate the annual return?
A: We multiply the gross monthly payments of principal and interest by 12 months to determine gross annual income and divide by the amount we paid for the mortgage. It does not include expenses for the cost of loan servicing or income taxes.
Q: How likely is it that a borrower will stop making their mortgage payments?
A: We believe it's not very likely for the following reasons: (1)The housing crisis was an anomaly brought on by poorly underwritten loans with terms that were unsustainable. Outside of that time period, owner-occupied mortgages had historically been one of the most stable credit products. (2) When the specialty real estate funds modify loans to get them re-performing they typically require a substantial upfront payment to offset the borrower's arrearages in return for lower monthly payments. The agreement reverts to the original, harsher terms if the borrower doesn't make the new payments for at least a year. Borrowers are not likely to make those upfront payments if they are not committed to the new repayment plan. 
Q: What if the default anyway?
A: The investor/note holder has options:

1) Negotiate a Solution: The investor's loan servicer should contact the borrower and find out why they are behiind in their payments. Depending on the reply, the servicer should provide you with several options. 

2) Cash-for-Keys: Sometimes borrowers cannot pay for reasons beyond their control, even though they developer enters into a long-term agreement with a corporate tenant, builds the facility to the tenant's specifications, and then sells the property with the new NNN lease upon completion of the development or even before.

3) Foreclosure: The investor can instruct their loan servicer to begin foreclosure proceedings. This is why our criteria always requires the Fair Market Value of the property to exceed the combined amount of the 1st & 2nd mortgages. Of course that means there's equity, so the borrower would likely sell the property themselves to capture the equity.
Q: What is the Investor's role?
A: Most importantly the investor should educate themselves on trust deed investments. However, after the investor chooses which mortgage to purchase and the transaction closes, their role is basically a passive one. The loan servicer collects payments from the borrower, deducts their fee (typically $20 - $35 per month per mortgage) and sends the investor the balance. They can also do a direct deposit to the investor's bank account.
Q: How safe are trust deed investments?
A: All investments carry some risk. However, with knowledge of the investment and a diligent evaluation of the note and deed of trust, the Investor should enjoy a high annual return on their investment with passive monthly income minimal to no management responsibilities or operating expenses. 
We recommend potential investors obtain the California Bureau of Real Estate (CalBRE) publication ‘Trust Deed Investments – What You Should Know.’  You can obtain this booklet by contacting Craig Saxon at Real Property Advisors, Inc. or obtain a copy from the CalBRE website at http://www.dre.ca.gov/files/pdf/re35.pdf.
Q: What kind of return can I expect?
A:  The investor's return depends on the amount paid for the mortgage, the amount of borrower's payments and the term of the note. We always require the seller to discount the purchase price from the total unpaid balance the borrower owes to give us at least a 10% return, but every investor has their own criteria. 
Q: How much does it cost?
A: The investor's costs are typically limited to the purchase price of the note plus any third party expenses to verify the value and veracity of the investment.  Real Property Advisors is compensated by the note sellers.
Q: What is my "Exit Strategy"?
A: Most investors want to buy and hold their trust deed investments for predictable, passive, monthly income. However, there are several possible outcomes and strategies. The most likely are the mortgage is paid in full according to the terms of the note or it is paid off early because the homeowners sells or refinances. The investor may also sell the note to another investor or even to the borrower at a profit. We recommend contacting Real Property Advisors to discuss these other alternatives.
Disclosure.The information contained herein is for informational and educational purposes only and does not constitute an offer or solicitation to buy or subscribe for any securities, nor should it or any part of it form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. The information herein does not constitute legal, accounting, tax or investment advice; such advice should be obtained from a competent professional authorized to provide such advice.