Funding Loans on a Trust Deed vs a Promissory Note

Private money lenders in real estate need a trust deed to secure their loans, and ensure the property does not transfer to a new owner before the loan is repaid.

last updated Wednesday, May 17, 2023
#Funding Loans #Trust Deed

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John Burson

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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 need a mortgage or a deed of trust to pay 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 estates office. This record then acts as a lien on the property so that any interested party knows that there is money owed to the lender by the estate. Without the deed of trust, unscrupulous borrowers can quickly sell off the property and run away with their 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, ask for a mortgage on the property to ensure the promissory note is secured, and the borrower will not run off with your money.

 
 
 

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