Trust Deeds Investing
What is mortgage fraud?
What is Mortgage fraud

Borrowers who steal money from a lender constitutes mortgage fraud when and if the security that was promised is not given to the lender as agreed upon, or other conspiracy to defraud a lender is uncovered.

If a borrower can obtain false appraisals and borrow money above what the property is worth without any intention to repay to loan, this is a type of mortgage fraud. Engaging a third party and their good credit to become an owner of the property with ill intent also constitutes mortgage fraud.

To all together avoid mortgage fraud in trust deed investing is to methodically and appropriately evaluate the credibility of every party who is/ will be involved in a given transaction. This will create an environment for smoother transactions that make sense for all involved parties.

What happens if the borrower files for bankruptcy?
What happens if the borrower files for bankruptcy

A delay is the foreclosure of the property will occur if this is the situation. The process for foreclosure takes approximately four months in the state of California. This is from the time of filing the foreclosure notice due to default to the time of the foreclosure sale. Borrowers who file bankruptcy will add up to [possibly] months. If equity still exists in the property the process for filing bankruptcy will take longer. Furthermore, bankruptcy judges have the power to rewrite terms of the loan that were key- such as the interest rate of the loan.

What are some examples of title issues or litigation that could cause problems?

A number of legal issues could arise which may make the title to a property hazy which in turn jeopardizes the lender’s right of collateral to secure the loan.

A dividing property line which cuts through the building or structure after already securing the loan is an example.

If a neighboring property so chooses, they can try to sue. This could allow them to place what is called a “lispendens” on the title of the property under the claim that the “subject property” does not meet building code requirements, and this will decrease the value of their own property.

Loan security from the property you are investing in could have already been involved in mortgage fraud, already having a lispendens placed on the property until a further time when the case has been resolved.

Lawsuits lispendens

Sometimes borrowers will, without the knowledge of (either) lender, take two loans out in the course of the same day, with the property being used as collateral. Unfortunately, one of the lenders has no choice but to be in the junior position if this happens.

As shown in some of these examples, property titles are vulnerable to legal problems. This is where due diligence must be conducted thoroughly by any trust deed investor on all properties, or else the avoidance of becoming entangled with a property that will be central in a legal battle will eventually be inevitable. Should legal battles arise, expedient management and resolution is the key or else legal fees will destroy any possible investment returns.

What is a lispendens? How does litigation surrounding a property affect a trust deed investor?

"Lis pendens" translates to "legal action is pending". If legal action is taken against a property owner under the allegation that an owner owes money while the property has been given as collateral for the loan, this is an example. The plaintiff’s lawyer can file a lispendens against the questionable property which prevents the property from being sold and the proceeds hidden. Lis pendens are very serious actions as it turns the title into a grey, questionable situation, and can take a long time to clear up. As a result many other interested parties tend to shy away from any interactions or transactions with a property that has a lispendens on the title. This is large liability to the party that records the lispendens.

Lis pendens are one of the most formidable occurrences for a trust deed investor. Should the case that is presented legally actually come up with some merit, the lender could have serious issues exiting the transaction in a time conscious manner, and this is only assumed if the lender is at no fault.

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