Successful investment in trust deeds involves answering the oft-asked question of what to do should payments on the note stop being made. Trust deeds offer no guarantees, and the risk of losing principal is always present. But taking action will result in the ability to recover as much of your investment as possible should delinquency occur.
Moving Fast Is the Key
Once the decision to foreclose has been made, the best and fastest way to recover your investment is via a prompt commencement and processing of the foreclosure. This will shorten time of delayed cash flow, as well as result in a much lower risk where damaged property is involved.
If you have funded junior liens, moving quickly will lessen the amount you’ll have to pay to reverse the default on senior liens, as well as allowing you to maintain them without further delinquency until the foreclosure sale has concluded. One thing to keep in mind is that a junior lien’s due date must occur prior to the due date of the senior lien.
Some documents will be needed from you in order for the foreclosure officer to begin the process. These include the original trust deed and statement as to how much remains owing on the loan.
Those who have invested in properties, which produce income, can recover their investments by electing to continue rents and profits as the foreclosure process occurs. However, legal assistance may be required in order to do this successfully.
Negotiating a Deed
Foreclosure can be avoided by negotiating a deed in lieu of foreclosure. When the document has been properly created and delivered, it will cause the transfer of a property’s title from the debtor to you. This method benefits you in a few ways; first, any fees associated with foreclosure are eliminated. Second, control and ownership of the property is immediate. However, any junior liens on the property must also be accepted when a deed in lieu of foreclosure has been negotiated. This differs from the foreclosure process, where junior liens are not considered claims against a property. No deed in lieu of foreclosure should be accepted until and unless title insurance coverage has first been secured.
Another way to increase the possibility of recovering your investment is to give the borrower an extension on the maturity of the loan. As well, the borrower can be notified that if they bring all of their payments current, the default can then be eliminated. The object here is to make some sort of arrangement with the borrower, which would avert the entire foreclosure process.
Some borrowers will file for bankruptcy so that foreclosure can be avoided. Where this is the case, the trustee is ordered by a judge to halt all foreclosure proceedings until the borrower’s outcome has been determined.
Should this happen to you, the best advice is, once again, to move quickly. An immediate response to a borrower’s bankruptcy filing will ensure that you receive what you are owed, which includes any fees associated with the foreclosure process as well as other costs.