Some investors make instructions of their own, to the title company.
This is above, and beyond, the brokers documents. Do you want additional conditions, requirements, or information? Be sure the title company knows, beforehand.
Read and familiarize yourself with each item in the pre-lim (preliminary title report).
This is issued by the title company, on each property. It is shortly after escrow is opened. The pre-lim is a snapshot, of the condition, of the title to the subject property, today. This is before escrow closes. So, it always contains items to be removed. These are as a condition of your funding of the new trust deed loan investment, to be recorded there.
Know the specific items of record, which are not to remain. This includes those which are. It doesn't matter if the loan is very well-secured. It doesn't matter if the thought of taking back a $200K home for $100K appeals to you.
Many investors read the pre-lim to familiarize themselves with the properties. This includes easements, assessments, mineral rights, assessed valuation, and so on. It is all there, in black and white, in the preliminary title report.
The smaller the individual trust deed investment increments, the greater the diversification you have!
This is especially important to investors relying on the monthly income, from payments. Does the total required investment exceed more than 10%, or 20%, of your total trust deed investment portfolio?
For example, consider an investor with $200K for well-secured, high-yielding, first trust deed investments. Are they better diversified funding half of 4 loans, rather than all of one or 2 loans? Half-ownership in twice as many well-secured, first trust deeds offers better diversification. This is known as fractionalizing loans, and has become very popular.
Are you committed to the shortest possible loan term?
Sometimes, trust deeds with too long a term are difficult, expensive, or impossible to liquidate, if an emergency arises. For most well-secured, new home construction loans, arranging a term of one year is not uncommon.
In an emergency, one-year notes are not difficult to liquidate at full face value. For many investors, funding loans for 1, 2, or 3 years works best.
Be familiar with the steps for telling the title co. to file notice of default, if a borrower becomes delinquent in payments.
Your title co. cheerfully handles all details of the foreclosure process. However, you must file the notice of default, promptly, if a borrower falls behind 2 payments. It is strongly recommended for investors, with a borrower behind 2 payments, to call the title company. Have them file the notice of default, promptly.
Remember, do this anytime two monthly payments have become late. Also, do this when any loan isn't repaid within 30 days, of the balloon date. Sometimes, 1 or 2, out of 100 borrowers, files for bankruptcy, to stall for additional time. It isn't often and poses no threat to you or your investment, if you've followed the rules.
If someone does file bankruptcy, your interest clock continues to tick daily. No bankruptcy alters the security, or position, of your investment. The lenders title policy insures you against it. This includes the costs, which are charged, in full, to the borrower. Legally, they are added to the loan amount.
Worst case scenario, for you the investor, is you suffer a temporary interruption, in your cash flow, from that loan. At times, trust deed investing is a very, slow, moving thing.
Never make loan extensions, additional advances, modifications, or other changes.
It doesn't matter how small. First, obtain written approval from any junior lien holders, of record. Expect to be sued for this, if you don't get written approval. It doesn't matter if you didn't know a junior lien holder, of record, existed.
Your liability extends to improperly executed extensions, modifications, rewrites, subordinations, or changes of any kind, to a note and deed of trust. The size of the change is irrelevant, and may result in loss of your investment. It sounds scary, but it's like saying don't jump off the bay bridge.
There is no good reason for anyone to alter, or modify, a note. Your broker is exempt from usury, in CA. You are not.
If someone wants an extension, or some minor change made, your broker has the title company do it. They properly:
update all documents,
renew fire and title policies,
draw and record all proper documents and modification agreements, and
issue a brand-new, full, A.L.T.A.-extended, lenders, title policy, with no deletions, to best protect your investment.