Trust Deeds

[Barry Phillips]

My partner and I are venturing in to trust deed investments.  I've subscribed to several organizations and have come across some opportunities where we can take 50% of the loan.  If there are two parties, who has first position if the borrower defaults on the loan?

Thanks.

[Joffrey Long]

Barry,

Great question.  

The answer is "neither."

Holders of fractionalized interests in the same deed of trust share lien priority rights as to other junior or senior lien holders, but not as to each other.

As "co-tenants" or holders of interests in fractionalized trust deeds, they don't necessarily have any priority (to the extent of lien priority rights) over each other.  When they foreclose, or if their secured interest is foreclosed out by a senior lien holder, they "win or lose" together, members of the same "team."

It is true that the "majority interest rule" may affect decision making when dealing with interests in fractionalized trust deeds.  But where it can affect decision making rights among holders, it doesn't give any holder any priority over the other holders.  

Holders of interests in multi-lender loans own the trust deed, and in the event of foreclosure, the collateral, in accordance with their percentage of ownership.

Your question is very good, and draws attention to an area our industry probably needs to explain better to the investing public.  I'll likely add your question and the answer to my web page, www.FractionalizedTrustDeeds.com which you may want to look at, as well.

I hope this answer was helpful.

Joffrey Long

Fractionalized Trust Deed Lender/Investor/Broker