Experiences investing in trust deeds

[Rob Cee]

I'm doing some passive investing in trust deeds and thankfully have never had any issues with defaults yet.  I'm not setting up my own trust deeds, I'm investing though hard money lenders who do everything and I write the check.  I'm doing this in the Western U.S. in trust deed non-judicial foreclosure states.   I'm curious, are their any investors out there that had to go through a foreclosure on a trust deed they owned?  What were the total costs (property taxes, insurance, foreclosure processing fees)?   Did you recoup your principle?

Any other stories of bad experiences?  Like having to take back a half-finished property or having the market go south on you when you had to take back a property?  I'm investing mostly on trust deeds that are fix & flip properties and some rental properties.  I have not ventured into funding spec building yet. 

[Account Closed]

I originate my own trust deeds here in SoCal.  Had to start foreclosure a few times but never went all the way, borrower always came through.  Foreclosure fees are limited by statute to about 1% of loan amount plus publishing/posting/tsg etc costs, comes out to about $3k, more if it's a really big loan amount, borrower pays upon reinstatement/payoff/trustee sale. There are a bunch of foreclosure trustee's around, any one can give you a quote.  Recouped principal and interest every time, except once when I only got principal back.

The key is to find a really good borrower (flipper), treat them right and they will treat you right, it can be a great relationship if done right.  This, to me, is the absolute most important part of this business...interest, fees, terms are secondary.

No really bad experiences ... yet.  Mostly the problems come when borrower stops communicating.  Irony is most problems can be worked out if we put our heads together, but when they stop communicating everything turns to do-do and not much can be done.

I've only done flipper loans, no keeper loans, and no ground-up loans.

Keep ltv low and 1st position only. Lot's of folks do 2nds ( gap funding or whatever you want to call it), they are going to really get whacked one of these days, if not already, these are generally the ones that raise their hands at the REIA's when asked who are the private lenders, usually about a third of the crowd.

Risky business if you don't know what you are doing, safe if you do.  I'm fairly new at this compared to some, but getting better every day (isn't that a beatles song).

Good luck.