Get Started Trust Deed Investing – 2024

Like most of First Capital Trust Deed’s current trust deed investors, you have funded private money loans in the past and are familiar with how the process works. Maybe you’ve worked with other private money mortgage brokers over the years and FCTD is new for you.

This blog post will cover the upfront preparation work required of you prior to funding your first loan, and outline the steps in the process to ensure that you get started trust deed investing with FCTD on the right foot.

Due Diligence Before Your First Loan With FCTD

Prior to reviewing funding opportunities, it’s good to start with the people and companies you’ll be working with in this process.

First Capital Trust Deeds — Mortgage Broker

FCTD is a brokerage specializing in mortgages for real estate investors, licensed in five states (CA DRE & CFL, OR, WA, ID, and FL). The company was founded by Brett Everett and Ted Spradlin in 2013. As of this writing in July 2022, FCTD has originated over $2 billion in private money, NonQM, and bank loans, which includes $355 million in loans with individual trust deed investors. The company is continually investing in software automation to meet the needs of our borrower and lender clients along with all the third parties involved in the transactions.

California Department of Real Estate Handbook

The majority of FCTD’s trust deed investor funded loans have been in California. The Department of Real Estate in California has a handbook that we recommend prospective investors read prior to getting into trust deed investing:

• RE 35: Trust Deed Investments – What You Should Know!!

FCI Lender Services — Loan Servicing / California TD Specialists – Trustee

FCI in Anaheim Hills handles most of the loan servicing for our trust deed investors. FCI’s trustee company, California TD Specialists, is the most common trustee on investor funded loans. The pricing starts at a $55 setup fee on a new loan and a minimum of $15/mo servicing fee on loans up to $400,000, increasing by $10/mo with each $100,000 increment on the loan balance. FCTD has automated the servicing setup process for our investors and borrowers using FCI’s forms.

Lender Vesting – How Do You Want To Appear on the Loan Docs and Deed of Trust?

FCTD works with individual investors who have one or several different entities they fund loans through. These include:

• Individually
• Trust
• Self-Directed IRA or 401K – good idea to check with your plan administrator on vesting
• Pension Plan
• LLC – is this in good standing?
• Corporation

We ask for the vesting to be confirmed early in the process because private money loans can close within a few days. FCTD sends lender (and borrower) vesting and documentation to Title for accuracy.

Select Your Trust Deed Investment Preferences

Let’s have a short call to discuss your previous history funding trust deeds, what you like and don’t like, and what you want going forward.

We have an Investor Intake that covers all aspects of your investing preferences, including:

• Loan Amounts
• Targeted Yield
• Duration (months)
• Leverage (lower or higher)
• Geographic Region — do you want to inspect the property and meet the borrower at the site?
• Property Types
• Whole Loan or Fractionalized Notes

Complete the RE 870 Investor Questionnaire

The California Department of Real Estate requires borrowers to complete either an annual RE 870 Investor Questionnaire (and kept on file) or an Investor Suitability disclosure with each loan.

• RE 870: Investor Questionnaire

Start Receiving Funding Opportunities

After we have a good understanding of your loan preferences, it’s now time to start receiving trust deed investment opportunities, which will come in a summary similar to this:

In addition to the summary, FCTD can provide the following information:

• Property Address(es)
• Title Report
• Borrower Profile
• Background Check (see Using Background Checks to Underwrite Private Money Loans)
• Credit Scores
• Valuation:
  Broker Price Opinion (BPO), Automated Value Model (AVM), or Appraisal
• Purchase Contract
• Income Statement/Rent Rolls
• Estimated Closing Date

Property Due Diligence

Once you commit to funding all or part of the loan, you’ll have time to do your due diligence on the property prior to the drafting of loan docs and funding.

For investors who prefer loans within driving distance from where they live, this gives them an opportunity to drive the property.

If it’s listed for sale, some of FCTD’s lenders are licensed real estate agents who will contact the listing and/or selling agents, requesting a time for a 5-10 minute walkthrough of the property. Some lenders will meet the agent at the property or just use their Supra key to check the property, as is the case with vacant properties.

One of our lenders who runs a family office makes it a requirement to meet the borrower at the property. Usually, these site visits are uneventful and are exactly what the borrower has represented to FCTD and the lender. However, there was one site visit around 2015 where the lender called to back out of the loan after meeting the borrower, whose story changed from the property being a flip (business-purpose loan) to wanting to move in (consumer loan) and sell their existing home. This family office only funds business-purpose loans.

Drafting Loan Docs, Funding, and Recording the Loan

This is where Aida Ojeda, FCTD’s Funding Manager, does a lot of the work behind the scenes.

Here’s what happens to get the loan closed:

• Lender vesting
  Confirmed with lender and title
• Borrower vesting
  Individually, Joint, TIC, LLC, Corporation, Trust, many intertwined entities consisting of 2-3 trusts that own 2-3 LLCs (happens more than you’d think in residential real estate). Who is the official signer?
• Title policy coverage
  Confirm 100% or 125%, endorsements, exclusions, etc.
• Insurance
  • Coverage confirmed
  • 12-month policy term plus 12 months payment paid prior to or through close of escrow
  • Lender loss payee confirmation
• Draft loan docs 
  FCTD uses Geraci Law Firm’s Hot Docs platform to create the loan docs, which allows us to draft docs for multiple properties, multiple lenders, senior or junior lien positions, etc.
• Final docs sent to trust deed investor for approval
• Loan docs, lenders instructions, estimated fees, and broker disclosures sent to escrow for signing
• Broker sends lender disclosures via DocuSign
• Sign loan docs 
• Review scanned copy of signed docs
  Borrowers often miss a signature, date, or declaration field (business purpose & English language the most common). Send back to borrower to execute.
• Borrower funds received by escrow (if purchase) confirmed
• Confirmations:
  
  • Title Policy
  • Signed Lender’s Instructions by title
    
  • Insurance - 12 months premium paid on the policy
• Lender wires loan funds to title
• Recording deed of trust & grant deed (or bargain & sale deed in Oregon)
• Close Escrow and Disburse Funds

Post-Closing and Loan Servicing Setup

The loan has closed but there is still work to do.

• Escrow mails the signed original loan docs to the trust deed investor or designated records custodian
• Loan servicing setup
  Martha Ramirez, FCTD’s Loan Servicing Manager, will email a Welcome Letter followed by a DocuSign to set up the FCI Loan Servicing account for the new loan. (The primary borrower also receives a similar version of the welcome letter and FCI servicing setup, and autodraft is almost always clicked.)
• Start Receiving Interest Payments
  Payments are usually auto-drafted into your bank account within 10 days after the borrower payment is received.

Next Steps To Get Started Trust Deed Investing

If you’re interested in working together, here are the next steps to get started trust deed investing:

1. Download RE 35: Trust Deed Investments —What You Should Know!!
2. Select your trust deed investor preferences
3. Have a conversation with FCTD
4. FCTD will send the RE 870 Investor Questionnaire via DocuSign
5. Start reviewing funding opportunities
6. Fund your first loan with FCTD!

Please feel free to reach out with any questions about trust deed investing.