Help ASAP! - Posted by John Katitus

Posted by Emory Mack on January 13, 1999 at 03:02:28:

I sold my property two years ago while I was in bitter court fight with my ex-wife. I feel now that I made a bad choice with the buyers that I put in the property. Because I could not concentrate on the deal I made choices based on feeling rather than logic. I did not run a credit check on them and they are making the payments late and slow. I still have a second on the property along with the wrap around. I would like to take the property back. As per the all inclusive note states that they have to pay all the court cost in the event of a default. They pay their bills on time but suject my credit to the lates and will not send proof of payment to me for the first trust deed. Do I have a strong case to take my property back.

Help ASAP! - Posted by John Katitus

Posted by John Katitus on November 20, 1998 at 13:54:52:

At a Newsgroup commentor’s urging, only to guage response, I put an ad in the paper:

Cash Needed - 12%, Secured, 48 Months

Just took the first call. The guy just got a 300K insurance settlement and wants to give me 100K for the full 48 months.
I have properties to give him second mortgages that will cover without exceeding 80% LTV.

What papers should I get to sign with him? Should the loan be amortized or just interest? Reinvest interest? What else?

Please help! Don’t want to lose this and am not sure how to proceed. Thanks.

Trust Deed / Trust Deed Note / Title company - Posted by John Behle

Posted by John Behle on November 20, 1998 at 17:21:22:

As they say on the TV stunt shows “Kids, Don’t try this at home!” You should seek legal help for this deal. That can be either a title company or attorney. The best of both worlds is an attorney at a title company.

You can secure the investor’s capital through a note. I don’t know what state you are in, so I’ll address both types of document possibilities.

Most states are trust deed states. Others use mortgages. Either way, there are two documents - either a “Trust Deed” and “Trust Deed Note” or a “Mortgage” and “Mortgage Note”. The note spells out the terms of the note and the Trust Deed or Mortgage spells out the terms and conditions of foreclosing on the collateral if need be.

Have a title company draft the documents. Make them separate deeds and notes for each property. Stay away from a “Blanket Mortgage” (they may try to steer you that way because it is a little simpler).

Since he has more cash than you need, consider using the “Discount Refinance” techniques. Look for private loans on any of your properties and arrange a discount. Then use his capital to finance at a better rate than the yield you discount to.

Then look for mortgages to buy at at least a 2% spread over your cost of funds. (Actually, when you learn to restructure and improve the mortgages, you can buy at the same yield as your cost of funds and still make incredible profits.)

Re: Trust Deed / Trust Deed Note / Title company - Posted by John Katitus

Posted by John Katitus on November 21, 1998 at 19:30:06:

Sorry for posting on both boards, but it was pertinent to both. Actually, the suggestion to seek private financing came from the RE board.

The initial problem was a property that I bought on land contract, rehabbed, and wanted to sell to restore cash reserves. When the house didn’t sell, it was suggested I seek private funding, issue a second, and Lease-Option. All of this I have done before, except the private funding.

Can I create a second mortgage on a property I bought land contract? Should I first transfer the property into a Land Trust, subject to the existing first mortgage, me as Trustee and Beneficiary, and create it then?

Thanks for your sage advice, as always. John

No second after a contract - Posted by John Behle

Posted by John Behle on November 22, 1998 at 24:57:11:

Few if any lenders would even consider making you a second in back of a contract. Most title companies would not write title insurance also. Some lenders may consider wrapping the loan, but you would be lucky to find one in your area.

Do you have any other properties to put up as collateral for a second? Could you turn this contract into a trust deed?

Re: No second after a contract - Posted by daveh

Posted by daveh on November 23, 1998 at 11:21:05:


I know many institutional buyers prefer mortgages and trust deeds over L/C’s and contracts for deed. Your scenario above seems to be another reason not to set up an original sale on a L/C but simply write up a private mortgage or private TD. Would you agree that contracts should be avoided if at all possible at point of sale?

Re: No second after a contract - Posted by John Behle

Posted by John Behle on November 23, 1998 at 12:49:52:

Land Contracts, trust deeds and mortgages are different in every state. In most states, contracts have too many inherent problems and should be avoided.

Some, have tightened up and made changes in contracts to help with avoid or minimize the problems. As a general rule, they are much better for the seller and in some states it would be an OK decision to sell on a contract - but not to buy.

Utah for example used to have a contract form with many problems. They changed the form a dozen years ago and really addressed the problems fairly well. A seller is much more protected than they were before, but the buyer still has potential problems.

So, all in all, it is usually better to avoid land sales contracts and use a Trust Deed or AITD (All Inclusive Trust Deed) instead .

Re: No second after a contract - Posted by John Katitus

Posted by John Katitus on November 25, 1998 at 03:26:17:

When you refer to a Trust Deed or AITD, do you mean forming a Land Trust, transferring the deed into the Trust, and getting the Beneficial Interest assigned to me? If so, that’s what I try to do now instead of Land Contracts.

If that is right, is there any reason I can’t do that now? Does the existing Land Contract make going to Land Trust impossible? (the Land Contract is recorded)
If I put it in a Land Trust, could I then create a second? Thanks again.

Trust Deed / Mortgage / Contract for Deed - Posted by John Behle

Posted by John Behle on November 25, 1998 at 13:00:00:

A “Trust Deed” is the most commonly used document for what we generally refer to as a mortgage. There are two documents - the Trust Deed and Trust Deed Note. The note or IOU is the evidence of debt. It refers to the Trust Deed which gives the lender or beneficiary on the Trust Deed Note the ability to foreclose and take the title if they are not paid.

To keep this clear, think “Trust” - I trust you, so I am loaning you money, and “Deed” - but in case you prove I can’t trust you, I am going to take your “Deed”.

In case of default, a notice of default is filed usually accompanied by a “Substitution of Trustee”. That Trustee is usually an attorney that will push the legal process forward and hold a “Trustee’s Sale” if the loan is not re-instated. In a Trust Deed, the “Trustor” (borrower) gives the “Trustee” the power of sale - meaning he can sell the property upon direction of the “Beneficiary” if the loan is not paid. He then gives a deed to the new buyer or to the beneficiary if there are no other bidders at the sale.

One important element of a “Trust Deed” is that no judicial or court proceedings are needed. It can move rapidly according to the state laws and time periods without the need to fit into the court calendar or have a judge involved in any way.

A Trust Deed has nothing to do with Land Trusts.

A Mortgage used to be the most common form of loan document. It includes the “Mortgage” and “Mortgage Note”. Like the Trust Deed, the mortgage secures the property and the Mortgage Note is the evidence of debt.

Most Mortgages have to be foreclosed judicially (a few states have changed that - and modeled their mortgage forms more like Trust Deeds). With Mortgages, there is usually a redemption period after the sale and foreclosure can take much longer. At the sale (except in rare circumstances) with a Trust Deed, it is over and there are no more claims or rights of the borrower.

A Mortgage can take as much as twice as long to foreclose as a Trust Deed.

A “Contract” is referred to as a Contract for Deed, Land Contract, Land Sales Contract, Installment Contract or Uniform Real Estate Contract in different states. It is most like a mortgage in the process of foreclosure, yet in some states there are “Recission” and “Default” procedures that can be quicker. The time period and procedures for foreclosure vary from state to state.

An “All Inclusive Trust Deed” or AITD is a Trust Deed that wraps around other exisiting loans. That is why it can be called a “Wrap” or “Wrap Loan”.

The term “Wrap” can also refer to a “Contract”.