Funding Loans on a Trust Deed vs a Promissory Note

Using loans from private money lenders is quite common in real estate, with some investors in the industry relying almost entirely on private money loans to run their businesses. While working in the complex money lending business, you will encounter several prime properties without trust deeds, requiring investors to use a promissory note as security.

As a lender, a promissory note does not give you the security to risk your finances. A promissory message is “a payment promise,” often issued without concrete evidence to back its legitimacy. As a private money lender, you typically require a mortgage or a deed of trust to secure payment on a promissory note. An act of confidence serves as a security document, as it legitimizes the promissory message by ensuring a record of the trust deed at the county's estate office. This record then acts as a lien on the property, so that any interested party is aware that money is owed to the lender by the estate. Without the deed of trust, unscrupulous borrowers can quickly sell the property and flee with the loan money.

As an investor looking to offer private loans to real estate investors, friends, or family, always ask for the deed of trust. If it is unavailable immediately, request a mortgage on the property to ensure the promissory note is secured, and the borrower will not default on the loan.