Trust deeds and mortgage notes investing are two different kinds of investment. Although some refers to these as similar type, if you look at it closely and understand the processes involving each of them you will be able to identify that each has its own advantages and disadvantages. Not all states in the US are using trust deeds, in fact, majority are using mortgage notes to secure a loan using real estate asset as collateral.
Trust deeds are allowed in most US states including big states like California and Texas while both mortgage notes investing and trust deeds are used by some states
There are more than twenty states in the US using trust deeds or what you call deed of trust states and these include Alaska, California, Idaho, Arizona, Colorado, Nebraska, Mississippi, Missouri, Maryland, Nevada, Montana, North Carolina, Oregon, New Mexico, Utah, Tennessee, Virginia, West Virginia, Texas, Washington and District of Columbia. Some of these states also allow mortgage notes but other states allow only mortgage notes. Both investment types allow the lender to earn passive income. Passive investment is a good source of income for self directed retirement plans.
Mortgage notes investments require only the borrower and the lender. The party who will hold the property title while the loan is active will be determined depending on the state law. In most cases, the borrower gets to keep the title but the lender is allowed to put lien on the property until the debt obligation has been completed. In trust deed investments, a neutral third party or the trustee keeps the title during the duration of the loan and when the debtor defaults, the lender could report to them so that they could foreclose the loan and put the property in auction to recover the lender’s remaining mortgage notes investment including the unpaid interests and other fees.
In mortgage notes investing, foreclosure is automatically sets out by the court, thus, the lender has to file a case first. In the event that the property gets sold, the proceeds will first go to mortgage payment (if there is any), then to the lender to satisfy the debts including legal fees, and lastly to the borrower if there is any amount left from the proceeds.