1)    Lender provides money to borrower to buy house. Borrower’s name is on deed; and lender’s security is a mortgage and a promissory note. Borrower misses payments. Lender legally forecloses to take ownership of house from borrower and sell to recoup money lent.

a)    If lender is a bank with deep financial pockets… the expense and time to transfer ownership into bank’s name, usually takes one to three years in court, but the bank will be fine in the end.

b)    If lender is a private lender without deep financial pockets… the expense and time to transfer ownership into an individual’s name, usually takes one to three years in court; but the private lender will not be fine in the end. 

Most private lenders that lend money use a realty mortgage and promissory note like banks do; but with higher risks. Why? Because they are led to believe that the property has enough equity (LTV is normally 80% percent on average) to protect them if they have to foreclose and take ownership to recover their money. 

What is not known, and purposely avoided in conversation, is how brutal, expensive, and time-consuming a foreclosure really is (as stated above: it could take up to three years in judicious states; and in non- judicious states less time but still dragged out none the less.) 

Since 1984, CRI has worked hard at avoiding mistakes and risks that could create harsh consequences and sometimes almost fatal mistakes that could take years to recover, if ever. And when we needed money to secure good real estate deals using private lenders, we structured their investments in such a way that if we ever failed making payments, the private money lenders would not have to go to court to take over the property. 

How? By having the money lender’s name on the deed. Meaning the money lender didn’t take a mortgage in exchange for the money lent. Why? Because the money lender owns one hundred percent legal and equitable title of the property.

Therefore, if there was a breach by failing to pay Trustee, under the terms agreed on by real estate investor, then the money lender just exercises his rights and with a simple notice, the borrower loses their interest.

The vehicle we use is a Revocable Trust, which is approved in all fifty states. Basically, there is:

1)     Joint Venture Agreement (Not recorded; outlining each person’s obligation, etc.)
2)     Trust Agreement (Not recorded; outlining the Trust terms and conditions and naming the Trustee and Beneficiary/s.)
3)     Memorandum of Trust (Recorded; announcing there is an unrecorded Trust Agreement.)
4)     Warranty Deed to Trustee (Recorded; showing money lender is owner of the trust.)
 5)     Memorandum of Title (Recorded; protecting Beneficiaries of an unannounced sale by Trustee.) 
6)     Release of Memorandum of Title (Held by Title company or attorney to be recorded at next closing or if Trustee takes back the beneficial interest.)
7)     Limited Power-of-Attorney (Pertaining to property only; Trustee authorizing real estate investor to get permits while rehabbing property.)

When property is owned by a trust, the trustee has one hundred percent legal and equity title; and the Beneficiary has one hundred percent interest in the trust. These two are separate from each other; in other words, the Trustee has the realty part, and the beneficiary has the personal property part.

The beneficiary gives a Security Agreement-Chattel Mortgage and a Promissory Note as collateral pledging his beneficial interest in the trust to the trustee’s investment. If not paid as agreed on, then the trustee notifies the beneficiary no longer has any interest in the trust. No court is involved.