Trust Deeds Investing

In the Event of a Default

What happens if the borrower doesn’t perform?
In the event of a default

When failure to make interest and principal payments occurs, or other lack occurs for provisions in the original loan agreement, the loan is considered in default. When this happens the lender will notify the loan servicer (this is an independent company that works with the borrower) that a default notice is to be filed. This is the first of several steps that ends in the foreclosure sale. In California, this process takes about four months.

Before a foreclosure sale, the borrower and lender may come to an agreed upon arrangement that negates the need for a foreclosure sale. If a borrower can bring a default to and by becoming current on all the payments, there is no need for a foreclosure sale. Sometimes a lender may choose to give an extension on the maturity of the loan.

Two main outcomes are typical for a foreclosure sale. A lender will either end up as the owner of the property in question or a third party makes an "all cash bid" in hopes of purchasing the foreclosing property that the lender accepts rather than taking the property back.

What is the foreclosure process like and how difficult is it to manage?
what happens if the borrower doesn’t perform

Again, this process varies from state to state. California has an expected four month period from original default on behalf of the borrower until the foreclosure sale occurs. Having a well weathered trustee or lawyer specializing in real estate is the key to managing a foreclosure without snags. A trustee will give appropriate notices at every state of the process to make sure that the process is valid. An attorney who is specifically a real estate lawyer will assist in the negotiation of circumstantial instances on behalf of the borrower, such as bankruptcy.

A trust deed investor should be prepared for default on any loan they are associated with. This process takes time and financial wherewithal, but the ability to delegate and outsource key measures in the process to be managed by better qualified and trusted sources will make the process fairly easy.

How long does it take to exit a trust deed investment in which the borrower defaults?
foreclosure with trust deeds

The amount of time is dependent upon the state. In California, if a lender takes action right away, it can be finished in about four months. If necessary the property is brought back to standard and listed for sale by a real estate agent. For a well-priced property sale could occur in about 45-60 days. All things considered, the exit process after a buy defaults on a trust deed investment is six months. If a borrower files for bankruptcy, tack on 30-90 days for the process to complete.

If you have experts handling during the default, this could shorten exit time significantly. If lender and borrower work together instead of foreclosing, a home may be sold without going through the foreclosure process, and this will shorten to time down to 60 days rather than six months.

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