license A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit). A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...

d trust deed investment company (TDIC) offers

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

s in

collateral Collateral may refer to: Business and finance * Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan * Marketing collateral, in marketing and sales Arts, entertainment, and media * ''Collate ...

-backed

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...

s in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

. Unlike private individuals who are generally subject to

usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is ch ...

laws limiting

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...

s on loans, TDICs can legally lend to property owners at rates determined by market demand. Because TDICs usually lend to borrowers with needs

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

s cannot accommodate (e.g., fast turnaround, multiple-use

real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...

projects), market rates for trust deed investments are usually significantly higher than bank

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...

rates. TDICs originate, underwrite, fund and service the loans for individual and/or group investors. Trust deed investors receive regular interest payments throughout the loan term and principal is repaid when the loan matures. In the event of default, TDICs generally manage workouts and, where necessary,

foreclosure Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. Formally, a mortg ...

, on behalf of investors. Some TDICs have in-house real estate brokers who can re-sell REO in the event of foreclosure. Others may also have

property management Property management is the operation, control, maintenance, and oversight of real estate and physical property. This can include residential, commercial, and land real estate. Management indicates the need for real estate to be cared for and monit ...

staff who can rent foreclosed properties on behalf of investors. Licensing requirements for TDICs vary from state to state. Generally, TDIC activities are overseen by a state's governing real estate, lending or corporation authority, or some combination.{{citation needed, date=January 2016 The private money loans provided by TDICs are also known as

hard money loan A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than ...

s—a reference to the hard

assets In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

that provide collateral for the loans. Hard money loans are usually short-term, bridge loans designed to meet temporary cash needs for projects that will eventually be refinanced with conventional bank loans.

External links

Trust deed investments: what you should know. Department of Real Estate, California

(Chapter 12) Department of Real Estate, California
Financial services in the United States

See also

External links