In the US, mortgage notes and trust deeds is a common practice when acquiring for a loan using real estate assets as collateral. Trust deeds and mortgage notes investment may be similar in nature but these two have very few distinct differences in which investors, especially those who wish to invest using their self directed retirement account, should consider. These differences are what make them applicable for every state in the US. Some of the states in the US using trust deeds are Alaska, District of Columbia, and California while more than half of the US states are using mortgage notes. We highly recommend Sense Financial when setting up self directed IRAs and Solo 401k.
Trust deeds and mortgage notes investments though similar in nature are still two different kinds of investment and different states in the US use either one of them
In mortgage notes, only two parties are doing transactions—the borrower who issues the promissory note using his or her property as the collateral and the lender who issues the loan and receives payment plus interest. Either of the two parties can take hold of the property title depending on what law the state implements, but it is certain that the borrower cannot sell the property until the loan amount has been fulfilled. In trust deed investments, there are three parties involved—the borrower, the lender, and the trustee who is a neutral third party person or company who keeps the title of the property while the borrower fulfills his obligation.
In the event that the borrower could no longer commit to his debt obligation, the process of foreclosure takes place. The foreclosing party is the lender and he has the right to seize the assets that the borrower used as collateral. However, going through foreclosure in trust deeds and mortgage notes investments have different process.
In states using trust deeds, going through foreclosure is simpler for both parties as the trustee is allowed to use power of sale foreclosure and sell the property when the borrower permanently defaults. This means that there is no need for the court to intervene in the process and that the borrower can recover his investments through the sale of the property.
Using mortgage notes when foreclosure takes place is a different story. Judicial foreclosure is applied and a legal case must be filed by the lender so that he or she can take back the remaining amount invested on the loan. In some states this process could take up to 18 months and sometimes, in a judicial foreclosure, mortgage payments, if there is any, must be satisfied first before the lender.