A trust deed or a deed of trust is a security instrument for real estate loans. In this case, the deed is a first lien on a property. The particulars of the loan are detailed in a separate promissory note, and the trust deed is recorded at the county recorder’s office. The trust deed serves legal notice to the world that the subject property is pledged to secure a loan. It also provides an accelerated foreclosure should a borrower default on a loan.
Private Lending (aka Trust Deed Investing) is not a new concept. In fact, private funds have been the security for banks ever since people began taking out loans on real estate. With private lending, the lender/investor serves as the bank which funds the real estate loan. The collateral for the loan is the specific piece of real estate for which the loan is funded. In other words, the borrower’s property is the collateral for the loan and the debt is evidenced and secured by a deed of trust. The private lender’s name is reflected on the deed of trust and is recorded in the appropriate county to make the loan or debt public record.
Capstone lends primarily on Residential Properties such as the following:
- Single Family Residence (SFR)
Capstone also lends on Commercial Properties such as the following:
- Multi-Family (Apartments)
- Retail Buildings
Every private lending transaction handled through our office will generally include the following:
- Signed & Recorded Deed of Trust– An official signed document attaching the new loan to the property as a first lien. A recorded copy to follow once it’s received from title.
- Signed Mortgage/Promissory Note– A personal commitment and guarantee from the borrower stating the specific loan terms to the private lender.
- Title Insurance Policy- A full title policy insuring the lender’s first lien to the property from any unknown potential title issues and/or outstanding liens.
- Hazard or Home Insurance Policy- A policy insuring the entire loan amount against fire or other potential disaster to the property.
- Loan Servicing Agreement- An agreement to collect the mortgage payment as stated on the promissory note for the lender’s new loan and to act as a liaison between both the lender and the borrower.
- Online Access- Every private lender receives a personal ID and Password and has online accessibility to their loan portfolio.
Real estate developers, builders, and investors are our borrowers. These borrowers are usually self-employed and savvy with real estate investing; however, they may not qualify or desire to qualify for conventional bank financing for various reasons (see below).
Remember these are short-term bridge loans; borrowers are typically not shopping for the best price as much as they are seeking for more creative terms and a timely closing. There are really many variables as to why a borrower would pay a higher cost to get a private loan; however, we have identified two common reasons here:
- Tightening of Credit– Our borrowers (many self-employed individuals) in many cases find it challenging to qualify with the currently more stringent bank guidelines and usually because they cannot prove consistent income and/or currently own too many properties they exceed conventional guidelines. The new Dodd Frank Laws make it harder for certain individuals to qualify. Because of this, we are seeing an increase in demand for private capital.
- Convenience– For our borrowers it’s usually not the cost of the money that counts, but the ability to receive funds quickly. They use this speed of financing to negotiate better terms with sellers, especially when they can use financing that is not subject to the standard or red tape qualifying methods. Because these loans are short-term (6-24 months) and more attainable, borrowers are typically able to welcome the higher costs in exchange for the benefits.
Our starting minimum is typically $100,000; however, we have made exceptions for lower amounts when getting comfortable with our lending program. Please know that we will work with most accredited investors; however, we typically prefer to work with individuals that are savvy & experienced in real estate investing and with available funds of $300,000 or more.
We have a 3rd party (sister company) loan servicing company (Walter Servicing) that handles all of the aspects of loan servicing including collections, defaults, and even foreclosures. Walter Servicing has a high-tech loan servicing software program (similar to those of banks). When a borrower does not make a timely payment, Walter Servicing personally reaches out to the borrower in efforts to cure the delinquency. In most cases this personal contact resolves the late payment; typically we find delinquencies are caused by inconsequential reasons such as the borrower being out of town, etc. However, when a borrower is truly delinquent and not responding to communication efforts the default process begins. This process takes approximately 2-3 months to set the property up for a potential foreclosure to take place.
Yes. Although foreclosures are typically rare (in a healthy real estate cycle), the lender/investor should be able to recoup all of their investment. Such was the case in a recent foreclosure; the lender/investor received all of the investment back (plus interest) because it sold for the full pay-off amount at the court house steps. Please know that when a foreclosure does occur, we have solid measures in place to address the issue. Please also keep in mind that there is never a guarantee of total principal security; however, we are able to mitigate the risk of a foreclosure by our conservative loan-to-value ratios that help off-set the threat of any loss as such the case in the above mentioned example.
Total funding’s since 2012:
Total defaults (foreclosures):
2.3% (3 properties total)
Total principal losses:
Walter Servicing sends out the (timely collected) monthly interest payments to the private lender on the 20th of every month. The lender can choose ACH (Direct Deposit) into their checking account or simply receive a monthly check from our office. Every private lender has full transparency and private online access to their lending portfolio at the following link:
Lender Online Access
You must be an Accredited Investor to invest in our Mortgage Fund (Capstone Fund, LLC- coming soon); however, you can still invest if you are not accredited and have real estate investing experience in our fractionalized lending program. Please call us for more details.
For an individual to be considered an accredited investor, they must have a net worth of at least one million US dollars, not including the value of their primary residence or have income of at least $200,000 each year for the last two years (or $300,000 together with their spouse if married) and have the expectation to make the same amount this year. If you are unsure if you qualify, please ask your CPA, Financial Planner or an Attorney.
In addition to the above, Capstone prefers to work with seasoned real estate investors only. If you have owned real estate as an investment and/or if you have purchased real estate notes we would like to talk with you about our lending opportunities.
If you would like to put your capital to work and start earning 8-10% Annual Return on First Liens on Real Estate, please click the link below and our team will follow up with you.