A trust deed investment is used to increase the return on your money above what you would otherwise receive from a savings account or CD. If you want to get involved such investments, you need to understand the use of an assignment of deed of trust. In many states, such as California, a deed of trust is recorded against real property to secure repayment of a promissory note. A trust deed investment essentially involves purchasing a promissory note with the deed of trust securing the note assigned to you as part of the transaction.
Promissory Note and Deed of Trust
A promissory note is used when you receive a loan to purchase real estate. The promissory note will state the repayment terms for the loan, such as the amount of monthly payment and interest rate. A deed of trust is used to secure repayment of the promissory note when it is recorded as a lien against the real estate purchased with the loan.
Purchasing the Note and Deed
A promissory note can be sold by the lender. This often occurs between banks, but can be done by anyone who wants to purchase the promissory note as an investment. When a promissory note is sold, the deed of trust securing the note is sold with it.
You should only purchase a promissory note through an escrow which is opened with proper instructions that should include, among other things, the delivery and recording of an assignment of the deed of trust securing the note. The escrow instructions should also state that the original note and deed of trust be given to you as part of the transaction.
The transaction documents for purchasing a promissory note and deed of trust should include not only the assignment of deed of trust, but several other document to ensure that your investment in the note and deed is sound. You should have already obtained a credit report on the borrower to verify his credit worthiness and the likelihood that he will continue paying on the promissory note. A preliminary title report should be obtained to verify the ownership of the property and the existence of any other liens. An appraisal is also advisable to determine that there is sufficient equity in the property to secure the promissory note.
Recovering Your Investment
If the borrower fails to repay the promissory note according to its terms, the deed of trust securing the note gives you a strong legal remedy—non-judicial foreclosure. The distinctive feature of a deed of trust is the “power of sale” clause that authorizes the trustee named in the trust deed (usually a title company or mortgage broker) to sell the property at public auction when you inform the trustee that the borrower has defaulted on the promissory note. The power of sale clause is found in the original deed of trust that was assigned to you when you made your investment by purchasing the promissory note. A non-judicial foreclosure is a desirable remedy, because it does not require going to court and takes less time and is less expensive than suing the borrower.
About the Author
Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.
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Mortgage Assignment - How Real Estate Investors Profit
Mortgage assignment is a common practice among lenders. A mortgage deed, also called a deed of trust or trustee's deed or deed of trustee, gives a lender a security interest in the property mortgaged in return for money received. Lenders and mortgagors of deeds of trust often sell mortgages to third parties, like other lenders. If a trustee is assigning beneficial interest under a deed of trust, it should be recorded in writing. Mortgage assignment is a document that indicates that such an assignment of contract has happened. Once an assignment is recorded, a new lender stands in the shoes of the original lender.
Although a lender is not required to inform a borrower prior to mortgage assignment, s/he must send a notification after a mortgage sale has taken place informing the borrower how to make mortgage payments in the future. The borrower can negotiate mortgage terms with the new lender and seek mortgage modification.
A mortgage deed refers to a deed accompanied by a mortgaged loan note. Every mortgage deed involves two steps: a promissory note and a mortgage. A note has details like amount owed, term of loan, etc. and is proof of existence of a mortgage. The mortgage is the means through which a borrower pledges or mortgages property as security for money received. The note and mortgage are two sides of the same coin and are inseparable. A mortgage follows the note and thus assignment of mortgage note results in assignment of a mortgage. In other words, a mortgage cannot be assigned without transferring the note. Therefore, assignment of note and mortgage happen simultaneously.
Mortgage assignments are beneficial to both home sellers as well as buyers. For home sellers it can be an easy way to sell a home that has been on the market a long time. The benefit for home buyers is that they can buy a house without going through the process of qualifying for a bank loan and making a large down payment. There are many real estate companies offering attractive assignment programs that benefit sellers and buyers alike. Using the benefits of such a home mortgage assignment program will help you sell your home quickly or buy a home without dealing with bank formalities.
Once a mortgage has been transferred, it means that obligation of loan has transferred. In order to validly assign a mortgage, a mortgage assignment document should have the following details:
- description of the real estate so that there is clarity about the property
- the name of the original party as well as the third party
- contact information
- the date when the mortgage assignment became valid
Assignment of mortgage should be recorded before the government authority that deals with property ownership, property taxes, etc. If you are a borrower and you receive a notice that your mortgage has been transferred to another lender, you should get in touch with your lender and confirm it. You should also secure details of the person to whom the mortgage was sold to.
If you are a new lender and do not have a valid mortgage assignment document, you will be disadvantaged if you have to move for foreclosure. In the event mortgage payments stop, you may want to move the local court for foreclosure and take ownership of the property mortgaged. If there was no legal document created when you assign a mortgage, you will have no right to file for foreclosure. Therefore, it is important to document when you assign a mortgage. Click here to view our sample mortgage assignment form, also referred to as an assignment of mortgage form or mortgage assignment letter.
One drawback of mortgage assignment is that it all depends on a third party. For many, getting mortgages assigned is a kind of real estate investing practice. The third party to whom the mortgage is assigned to is a real estate investor who reaps the benefits of one of the party's desperateness. The investor third party is only concerned about reaping mortgage assignment profit from the mortgage assignment investing deal s/he has entered into and has no regard for the financial well being of the parties involved.
Mortgage Assignment FAQs
What is mortgage assignment?
Mortgage assignment, also called assignment of trustee's deed or assignment of deed of trustee, is the process of selling an existing mortgage to a third party. The borrower gets notice to make mortgage payments after the date of assignment of the mortgage deed to the new mortgagee. A mortgage assignment form satisfies lawful conveyance of the mortgage. An assignment of mortgage form also signifies that an assignment of contract has occurred and mortgage has been transferred.
Who can assign a mortgage?
A mortgage holder or a borrower can assign the mortgage to a third party. A lender can also assign a mortgage to another lender. In some cases, a homeowner can engage in assignment of mortgage, but the lender must give permission.
What are my benefits if I engage in HUD mortgage assignment program?
Homeowners can avoid foreclosure and can refinance their mortgage with the help of a mortgage assignment program offered by the U.S. Department of Housing & Urban development (HUD). In a real estate investing business, mortgage assignment program helps a real estate investor to sell his/her home really quickly.
What are the drawbacks of mortgage assignments?
There are a few drawbacks to assignment of a mortgage that you should be aware of. In case the buyer defaults on payments, you might have trouble collecting. Another disadvantage is that mortgage assignment depends on a third party-the new buyer, who is only concerned about getting mortgage assignment profit from a mortgage assignment deal.
Can you explain the process of mortgage assignment?
It is always advisable to utilize the services of a professional realtor or investor in the mortgage assignment investing business. Once you assign such a firm the task of mortgage assignment by signing a sales contract, they will do all the paperwork necessary for a mortgage assignment program. You will be required to submit additional documents related to the mortgage in order to assign the mortgage. The mortgage will then be advertised. Once a buyer is located, your realtor will require you to sign remaining paperwork and will prepare closing documents.
Documents required for a mortgage assignment are:
- loan details including loan number, loan type and terms of loan
- an authorization to discharge Loan Information
- purchase contract and addendum to contract identifying conditions of mortgage assignment
- seller's disclosure document
- mortgage assignment letter
- document assigning insurance contract
- an acknowledgement document by seller
- mortgage modifications, if any