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- Hello everyone.
And welcome to another
episode of Coffee with Carl.
I'm your host, Carl Zoner.
I'm one of the attorneys here
with Anderson business advisors.
And today's subject we're gonna talk about
Deed of Trust or Mortgage,
some of the basic differences,
as well as some of the,
I guess, things you
should know about them.
So starting out, let's
talk about what they are
at their most basic.
Both a Deed of Trust and a Mortgage,
function as a lien against
the title of the property,
or as a security interest
that is usually tied to some sort of loan.
So if I have a loan or am I lending money
on a project or on a property,
what I'm doing is depending on the state,
I'm filing either a Deed of Trust
or Mortgage against the property.
So I'm taking that collateral
of the actual property.
So I make sure I get paid out on sale.
So easiest way to visualize
this would be when you bought,
if you own a personal residence,
is when you bought your
personal residence.
If you borrowed money
from a bank for the loan,
they put it usually put a Mortgage,
they use the same tools,
Deed of Trust, or Mortgage
against the property so that
they have a interest in it.
If you sell it, they get paid.
So same idea you would use if you say,
you're lending on real estate.
So to make the real major difference
between a Deed of Trust or a Mortgage
from a functional standpoint is
a Deed of Trust, has three parties to it,
the lender, the borrower,
as well as a trustee,
normally that trustee can be
a banker or a title company.
And the Mortgage is usually just between
a lender and borrower.
Another distinction or
another thing to note here
between Deed of Trust or
Mortgage is some states
allow for Mortgages.
Some only allow for Mortgages
and some only allow for Deed of Trust.
And then there's a couple
that are okay with both.
In my experience, if it's basically filed
or formatted correctly,
the County recorder will
generally record it.
But when you go to a
title company to record
this lien against the property,
usually that title company
will put you in the right category
of what you need or
any requirements there.
So the big difference,
like I said, really,
that there's a third
party to a Deed of Trust.
There's only two on a Mortgage.
So that is your most basic
sort of piece of this puzzle.
Like I mentioned, realistically,
if you're gonna be lending on a property,
you're gonna want one of these,
depending on the state filed
against the property though.
So you have, what's referred
to as a secured note,
and this is the security
portion of that note.
The, another item to consider,
or at least discuss is that
when you file one of these on a property,
normally when the property goes to sale,
the title company will see
that note on title and pay it out.
So that's another reason as well.
We want there to be that note on title
for the main reason would
be that if it's not,
or that loan is not secured
and the buyer has no notice
of that lien on the property.
Then if they purchased the property,
they would purchase that
property free of that lien.
So we want that note on there
to make sure you get paid
at the end of the day.
So this is really important,
like I said, for our lenders out there,
as well as our developer
or property developers
or somebody taking on
loans so that you know,
what the appropriate process is.
The other thing to note
with these is sometimes
if you have a hard money
lender on a property,
they may not want to
have this second lien.
So then you would need to
work on another scenario
with your lender or your, the person
lending on the project to
make sure they're comfortable
with the business proposal as well.
Lots of ways to do your
real estate transaction.
Doesn't have to be sort of
the loan and lien scenario
as we're talking about here.
But it bears to mention just because
we do get a lot of questions on it.
What is a Deed of Trust?
How do I set one up?
Or, my state's a Mortgage
state, how do I do that?
So just like I said,
the real from a real basic understanding,
it is just a lien on the property,
whether it's a Deed of Trust or Mortgage,
it's really about facilitating
it in the correct way.
So we're happy to give you
a little information on that side.
So as always, please take advantage
of all of our free content out there.
Also, if we, we've got
several online classes
coming up as well, so we encourage
you to join us for those.
And in the meantime, if
you're a platinum client,
feel free to always reach out to us,
we're happy to chat with you.
And if you're not yet a client,
we want you to get that free consultation.
So you can at least see
what Anderson would suggest
when we're looking at your
business entity structure
and tax planning strategies.
So till next time,
thank you for joining me for this
episode of Coffee With Carl,
and we will catch you on the next one.
Thanks.
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