Q: What is a Trust Deed Investment?
A Trust Deed, known as a "deed of trust" is a document recorded against a specific property or group of properties with the county recorder's office, encumbering the property(s) with a loan. A deed of trust is the document that secures the collateral against the promissory note. An investor, or a group of investors, may fund a loan on real property (real estate). Upon execution of the documents, the investor will then own all of, or part of the loan, including the principal balance as well as the profit from the interest. Typical ELP Trust Deed investments will return an investor between 10% and 14% annualized, with monthly interest income.
Q: What are the benefits of investing in Trust Deeds?
A: Investing in Trust Deeds has several benefits. First, the security of the investment is real property (real estate). Unlike stocks, commodities or other volatile investment vehicles, Trust Deed investments are secured by real estate. The overall real estate market has grown and increased (appreciated) in value for hundreds of years. Although sometimes markets do experience slow-downs and slight decreases in value do occur, statistically they rebound and recover quickly, as compared to stocks or other investment opportunities that may never recover. Another benefit of investing in Trust Deeds is cash-flow. Equity Lending Partners will send your interest check each month, upon payment from the borrower. Because you receive a monthly check, your interest earned can be used as residual income, which is the most common reason our investors choose this type of investment vehicle.
Q: How do Trust Deeds compare to other investments?
Trust Deeds have a reputation for offering healthy returns and lower risk investments. Returns can range widely, however standard returns range between 10% and 14%. When comparing Trust Deed Investments to stocks, there are many differences. Stocks have a potentially large upside. Returns can often exceed 10%, but the risk also increases. In addition, stocks vary in value on a daily basis. There are many outside and unpredictable factors that determine the value of a given stock. For example, a company may file for bankruptcy thus reducing your capital value by 50% in a single day. When investing in Trust Deeds, borrowers may go bankrupt but properties do not, and real estate market values do not shift violently from day to day. Other investments such as interest rates on government insured CDs, bonds and bank accounts are far less than the yield of Trust Deeds.
Q: I have heard of first, second and third Trust Deeds. What are the differences?
The difference between first, second, and third Trust Deeds is the priority of lien you hold against the property. For example, a first Trust Deed gives you FIRST priority above all other liens (except property taxes). Second and third Trust Deeds follow first Trust Deeds in priority. ELP occasionally lends on second Trust Deeds, but will not lend on third Trust Deeds because of the associated risk.
Q: What should I be looking for when evaluating a potential Trust Deed investment, and what does Equity Lending Partners evaluate?
Equity Lending Partners evaluates the same criteria you should, and we will take as much time with you as you would like to help you understand our process and reasoning in evaluating investment opportunities. We have strict in-house underwriting guidelines that help us determine whether we will consider a lending opportunity. First, we look at the type of property. Second, we look at loan-to-value (LTV). Finally, the strength of the borrower is carefully evaluated. We look at each borrower's circumstances and ability to repay the loan. We always require a "vested interest" in the property or project, so that the borrower has a significant risk involved if he or she does not make the payments. Depending upon the loan, tax returns, financial statements, assets and a credit report are most frequently reviewed to determine the strength of the borrower.
Q: How much should I invest in each Trust Deed investment?
Equity Lending Partners is an advocate of "diversification." We feel that it is better to own portions of several Trust Deeds, versus one large sum of a single Trust Deed. You may also choose to invest in various geographic areas or property types, which will give you different market conditions to vary your portfolio.
Q: What does LTV or Loan to Value mean?
Loan to Value is the amount loaned to the borrower divided by the value of the property. This is an important number due to the fact that the loan is secured by the property. The lower the LTV, the stronger the investor’s position. The LTV will vary for different investments but generally will range from 40% to 70% and the value of the property will be determined by an appraisal completed usually by a certified MAI appraiser.
Example – Loan $1,000,000 divided by the Property Value
$2,000,000 = 50% LTV
Q: How much risk is there in Trust Deed investments?
There is risk associated with all investment choices. The loans offered by Equity Lending Partners are real estate secured Trust Deeds. We manage the risk in the Trust Deeds offered by ELP by confirming the value of the property being used as collateral to secure the Trust Deed. We also manage the risk by keeping the loan to value low. Most of our residential and commercial loans are at 50% to 70% LTV and most of our raw land loans are at 40% to 60% LTV.
Q: What is the minimum to invest?
Our minimum investment requirement is $50,000. We usually recommend to our investors that they spread out their investments among several opportunities.
Q: When will I receive my monthly interest payments?
You will receive your payment within the first week of each month and some loans may have all or part of the interest paid up front at the close of escrow. This varies by the terms of the loan.
Q: What types of loans do you make?
We have three main types of property that we will loan on, residential, commercial and raw land. Most loans are made for a period of 6-24 months.
Q: What is your average return on your loans?
Our loans range from 9% to 14% with 12% as the average yield on most loans.
Q: What fees am I charged as an investor?
Our investors pay no fees to create the loan. All loan expenses are paid by the borrower. If you invest $100,000 the full amount goes to work for you.
Q: How do I get started?
We can send you a loan summary of the investment you are interested in or you can view the entire package of loans on our web site. Every loan summary contains specific, regulated information regarding an investment opportunity. Loan summaries are first approved by the State of Nevada Mortgage Lending Division for the proper information. We then need to complete the investor’s client profile and appropriate disclosure forms with you and open your account. Once you select a loan to invest in, you can send us the funds via wire or cashiers check, and we will deposit it on your behalf into the loan escrow account.
Q: Do you have direct deposit?
We have the ability to deposit funds directly to your preferred bank account with the proper paperwork in place.
Q: What happens when the loan is paid off?
The final interest payment is sent to the investor along with their principal investment.
Q: What size of loans do you make?
We have made loans for as little as $50,000 to as much as in the tens of millions. Most of our loans average in the $3 to $5 million range.
Q: How long have you been in business?
Our CEO, Tom Powell, has been in the lending business for nearly 20 years. In addition, our combined lending and development experience between our principals and management is over 115 years. We have extensive experience in private, commercial, and residential lending between ELP and our parent company IntoHomes Mortgage Services, Inc., which has been conducting residential financing since 1999.
Q: What are interest reserves?
Most loans are required to have interest reserves that are held in an account to pay for the interest payments to the investors for most or all of the loan term. It is another protection tool for the investors to assure performance on the loan.
Q: Do you get your own appraisals?
If the loan comes to us with an appraisal completed, we do an appraisal review and check the credentials of the appraiser along with pulling our own comps for the area. If we feel that the appraisal is off from what we think it should be, we order our own appraisal to insure both our comfort, as well as your comfort with the investment. Many times, we order the appraisal ourselves for the loan
Q: Why would a borrower pay such high interest rates, when banks will lend for less?
There are many reasons why borrowers come to Equity Lending Partners for loans versus other lending institutions such as banks. These reasons include:
Flexible Terms
Quick turn around times from contact to actual funding
Short Term & Bridge Financing
Credit Issues that don’t fit within bank guidelines
Property Issues prohibitive to obtaining bank financing
Prefer a private funding company
Q: What is the process if a borrower does not pay?
All loan payments are due on 1st of each month and have a 5 day grace period. Upon the 6th day if payment is not received a phone call is placed to remedy the situation with the borrower. ELP always desires to work out any problems with the borrower prior to starting any legal actions. If payment is not made along with late fees in full by the 15th of the month then a Notice of Default (NOD) will be filed and recorded. The foreclosure process is started if within 90 days the loan is not brought current and once all requirements are filed and met the property is sold in 120 days.
Q: How many loans have you had to foreclose on?
To date we have not had any defaults or foreclosures on any of the loans we have funded.
Q: What if the borrower files bankruptcy?
In the loan documents signed by the borrower there is a statement regarding bankruptcy. On short-term loans it would be considered fraud to obtain a loan and then file bankruptcy.
Q: What if they homestead their property?
Homesteading only applies to debt that is not secured by the real property. Homesteading protects from credit card debt, car loans, department store accounts, etc.
Q: How secure is my investment outside of ELP?
As an investor you own a fractional proportion of the Trust Deed and the promissory note. Equity Lending Partners does not control or own the deed of trust. ELP will be servicing the loan for your convenience through Western Title Installment Collections, but the success of ELP as a company does not determine or affect your investment.
Frequently Asked Questions About Foreclosures
Q: When can a Lender foreclose?
Q: What is a "non-judicial" foreclosure?
Q: What costs are associated with a foreclosure?
Q: Who pays the Foreclosure Fees?
Q: What kinds of communication can I expect during the foreclosure process?
Q: When can a Lender foreclose?
A lender can foreclose on a property when the borrower defaults under the terms and conditions of the loan, set forth in the Promissory Note and Deed of Trust. The foreclosure process must be in accordance with the state and federal foreclosure laws.
Q: What is a "non-judicial" foreclosure?
A "non-judicial" foreclosure is a foreclosure process that does not involve a judicial ruling. "Judicial" foreclosures are handled, in part, within the judicial court systems.
Q: What costs are associated with a foreclosure?
Depending upon the specific situation, the foreclosure costs can range from any combination of the following: Attorney’s fees, third party trustee and handling fees, mailings, notifications, publications, recordings, advancements, inspections, etc. There is no "standard" amount that a foreclosure will cost, as there are many variables. These variables can include loan amount, complexity of the loan structure, properties involved, lien position, property type and location, etc. Foreclosure costs will vary on a loan-by-loan basis.
Q: Who pays the Foreclosure Fees?
If the borrower reinstates the loan or elects to pay if off through any means, these costs are added to the payoff or reinstatement figure. If the property is sold at the auction by means of a "Full Credit Bid," the fees will be reimbursed to the investors out of our proceeds. If the property is not sold at the foreclosure sale, the investors are liable for the foreclosure costs. In many cases, these costs are recovered in the sale of the property past foreclosure.
Q: What kinds of communication can I expect during the foreclosure process?
Equity Lending Partners, LLC will provide you with copies of all pertinent documents pertaining to the foreclosure. This will include the Notice of Default (NOD), Notice of Trustee’s Sale (NOS), any important communication between us and the borrower, status of taxes, insurance, any senior lien information, etc. We know communication is key and we will keep you informed every step of the process.
