How to Prepare a Deed of Trust (Real Estate Seller Financing Tutorial)

How to Prepare a Deed of Trust (Real Estate Seller Financing Tutorial)

– So if you’re closing a seller financed real estate deal with a deed of trust, there are three key documents that are involved in this process. There is the deed, there is the promissory note, and there’s the deed of trust. The deed is the document that essentially transfers ownership from
the seller to the buyer. And the note is like the legal
instrument that just states all the terms of what the loan are, the interest rate, the loan amount, the payments, all that information. And then the deed of trust is the document that actually gets recorded
at the county level and it acts as a lien on the property until that loan is paid in full. So the deed and the deed
of trust get recorded, but the promissory note does not. And the way a deed of trust works, is there’s three parties involved. There is the lender, and there is the borrower, and then there’s a third
party called a trustee. And a trustee is usually
designated as like a title company, or an attorney, or sometimes even a
loan servicing company. And this trustee is the person
or entity that is empowered to go in and handle
the foreclosure process if the borrower ever
defaults on their payments and stops paying. If a borrower ever stops paying, the lender would notify the
trustee and then together they would send out all
the proper notifications as required by the State. And once that’s all done, and they’ve complied with all the proper State required notifications, the trustee can then hold a public auction where they sell this
property to another buyer, or in some cases, the lender can actually buy
the property back themselves. And some of that varies depending on what State you’re working in, but that’s effectively the nature of how a deed of trust works. Now in most cases, when you’re closing a seller financed deal with the deed of trust, that closing is gonna be
handled by an attorney or a title company and in those cases, that attorney or title company would be the one listed as the trustee. So if you’re gonna be
closing this yourself, it would be up to you to find a third party like that
to act as that trustee. And usually States have
certain types of professionals or licensed individuals who are authorized to act as trustees in these situations. Usually an attorney or title
company will fit the bill, but that’s something you’d have to verify based on the State where
your property is located. And along those same lines, I will say that in most
cases when people are closing a deal with a
deed of trust like this, that document is either
being written specifically for that deal by an
attorney or a title company, or some other professional closing agent, he’s using some kind of
State-specific template to put it together. And the language that’s
included in a deed of trust can actually be very very
important because it can have implications for any
kind of foreclosure scenario. If you ever do have a
borrower who stops paying, this document governs
in some very real ways what you’re able to do and
whether or not you’re able to do a non-judicial foreclosure. And usually in a lot of States that’s why people use a deed of trust, is because it’s a much
easier way to foreclose or repossess a property without having to go through a court procedure. Now in order to go that
non-judicial route, something that needs to be included in the deed of trust document is known as the power of sale language. And this is the language
that essentially allows the lender and the trustee
to hold a public auction and sell the property to a third party if the borrower ever stops paying. If that power of sale language
is not included in there, then they can’t do it. And they would essentially
have to go through the courts in order to foreclose on the property. So it’s pretty important if
you want to use a deed of trust and have that non-judicial
option that you include the proper State-specific power
of sale language in there. Now as a general blanket statement, since I’m not an attorney, I have to say that it really
is best to have an attorney put this document
together because they can address any specific
issues that pertain to the specific property that you’re selling, or the State that your
property is located in. But on the same coin, there are a lot of properties out there, like for example, vacant land. I’ve sold a lots of vacant land parcels with seller financing. This is a very simple type of property. There’s nobody living on it, there’s no improvements on it. It’s just not that complicated of a property type to work with. And in those situations, a lot of time I’m comfortable
putting together this document myself if I’ve got the
right template to work with and if I understand all of the issues and the laws and statutes in that State that pertain to seller financing. Because this is something that can be very different from State to State. So when I understand how my State works, and I understand how the document works, those are the kind of
situations where I’m comfortable putting together this document myself. And one option that’s out there, that I just think you should know about, I’m not saying if and
when you should do this, but just something you should be aware of, is the service called Rocket Lawyer. I’ve been using them
for several months now. And I gotta tell you they
make it very very easy to put together this type of document. And even when you do use them, it usually makes sense
especially the first time, to have an attorney just
cross check it and make sure all of the State-specific
language is in there. But once you do that, I mean the service is just awesome. Like you just have to fill
out a little questionnaire, and it prepares the
whole document for you. And something I want to
show you in this video is exactly how that works. So in the next few minutes
I’m just going to take you through the exact process of how to fill out a deed of trust exactly. And you can see what I mean. It’s very straightforward, it’s not hard to use at all. And I actually do have an
affiliate link to Rocket Lawyer. There’s a link beneath this video. And if you click that link
it’ll take you directly to the deed of trust page. So you can get started on your own. And being that this is an affiliate link, I will get a small commission
if you click on that and sign up for the Rocket
Lawyer service through that link. But it’s not a big deal if
you don’t want to use it, it’s not gonna hurt my feelings. The main point is, I just want to make sure that
you’re aware of this service because I find it to be really helpful. And depending on your situation, you might find it to be
really helpful as well. So let’s jump into the site and I will show you how it’s done. In this example, this is like a fictitious property, this is not an actual deal I’m doing. But I just want to show you how easy it is to plug in the information that you need, and make it happen. So let’s say this one is in California, click Make Document. And then for the county, let’s say this is in Kern county, and again this is in California. And for the date, I’ll just put today’s date here. As you can see I’m recording
this on April 11, 2016. Then who is the borrower? We’ll say John Smith. Address 1234 Anywhere Street, and we’ll say that this guy is in Beverly Hills, California 90210. Continue. And then where will John
Smith sign the deed of trust? We are gonna say that this is
gonna happen in California, in his county. So Los Angeles. Continue. And then if John Smith had a
spouse we could add them here. But for the sake of simplicity
we’re just gonna keep moving. And keep in mind if you
come across anything in this document where
you just don’t understand what you’re supposed to be doing, they’ve made it really easy here to just ask a question right there. I haven’t come across anything
in this particular form yet, that I didn’t understand. But if I did, they just make it really
easy to ask that question and it goes directly to
an attorney in California, or in whichever State you’re working in. And you’ll usually get an answer back from them within the day. So that’s just a really helpful handy tip. And for me I’m just gonna
say I’m the lender here. And then put in your Grand
Rapids, Michigan 9525. By the way that’s not my actual address, in case you wondered. And then we’ll hit Continue. And then go ahead and hit Continue again. Now who is the trustee? So in case you don’t already
know how a deed of trust works, the way it’s set up is
that there’s technically three parties involved. The first party is the seller/lender, so that’s me. And then the second party
is the buyer/borrower, so that’s this fictitious
John Smith character we just made up. And then the third party is the trustee. And this could be like your
loan servicing company, this could be an attorney
that you’ve designated. So assuming you’ve got
a trustee set aside, I’m just gonna put like Lawyer, Inc. And this person’s gonna be, we’ll just say that they’re
also in Beverly Hills and we’ll hit Continue. And then is there a
guarantor for the loan? Most of the deals that I do, I do not have a guarantor like this. So I would just say No. The address of the property, again we’ll just make
up another thing here. And then once you’ve got that
info in we’ll click Continue. And then for the legal description, this is something you can typically get from the last deed of record. You can also usually find
it on the county website, or if you subscribe to
a service like RealQuest or Agent Pro 24/7, or something like that, you can usually find this there. It usually looks somewhat confusing. Something like range 62, section 78, again I’m just making this up as I go. But if you’ve got a specific
legal description in mind, you can just copy it and
paste it right into here. Then we’ll hit Continue. And then the date of the promissory note, we’re gonna say that we’re
closing this deal on May 1. Then hit Continue. And the amount. We’ll say that this is for 20,000. Interest rate, we’ll make this 9.99%. That’s one of the nice things
about seller financing, is you can usually control
all these variables. And then what is the
interest adjustment date? This is actually a good example, when I first see this question, I don’t really know what
they’re talking about. And all I have to do is kinda read this explanation that they’re saying. And there’s this little note. It usually is the date the
loan funds are distributed. So say if we’re gonna
close this thing on May 1, and that’s the date at which
the quote-unquote loan funds are being put out there. Which really in my case is nothing, but since I’m the seller
financing the deal, if there ever had to be a
date of which the funds are supposedly distributed, it’s on that date. So given that explanation I’m just gonna make it in the
same date as the closing date. And again if I didn’t
fully understand this, I could just ask the question here. And hit Continue. Then how often will payments
be made on the loan? We’re gonna make this monthly. Alright and then how much is each payment? I just ran a quick
amortization schedule on this, and it was giving me a
payment of 425 bucks a month, and that’s based on a
five year amortization at a interest rate of 9.99%. So that’s where that came from. But as long as you got that number, you just put that in there
for the payment amount, and you click Continue. And then enter the
address where the borrower is to make payments to the lender. Now this kind of depends
on whether you are servicing the loan yourself, or if you’ve got like a third
party loan servicing company in mind to kinda help you
collect these payments. If you’re using a loan servicing company then you would put their address in here, so that the payments are sent to them, not to you. Cause they’re gonna be handling all that. But if you’re servicing yourself, or if you’re using some kind of automated payment collection service, where it’s just hitting
the person’s credit card or bank account on the
first of each month, or even if they’re mailing a physical check to you each month, in all those cases then you would just put your address here. So I’m gonna assume that route. Put my address here again. And then click Continue. And then what is the maturity date? This is like the date of the
last payment of the loan. This is the date at which once
that last payment is made, this thing is paid off, it’s done, they don’t owe you anything else. And in this hypothetical example, if this loan is gonna last
for 60 months or five years, that 60th month is the last payment in the date at which it would be paid off. So in this case, if the loan payment
started on May 1, 2016, the last month would be April 1, 2021, like that. So once that’s in there, you would hit Continue. And then does the loan allow the borrower to pre-pay or make early
payments without penalty? I’m just gonna say yes. It’s completely up to you whether or not you want to do that. I mean for that matter, everything I’m talking
about is totally up to you, but in my situations I usually say ya, just cause it’s not a huge deal to me. We’ll do that and hit continue. And then what type of early
payment does the loan allow? At this point I could specify, you know you’re only allowed
to pay off the entire thing if you’re gonna pre-pay it. Like I don’t want to mess with these little sporadic partial payments. You can either pay it all off at once, or not at all. Or I can say you can pay
me whatever you want, you can pay me an extra
50 cents each month, pay him an extra 100 bucks, 500 bucks, I don’t care. Anything. I will say that doing this
second one is definitely easier in terms of tracking and
then it also is kind of a deterrent for them to pay it off, cause obviously it’s harder to
come up with the full amount. Either with your own cash or by refinancing it with a bank loan. So depending on what you’re willing to do, that will govern which
one you should choose. I’m just gonna make it any amount. Cause it’s not really
a huge problem for me. And then I’ll click Continue. And then will the deed of trust include a power of sale clause? And this is actually
a very important part. At the time of this recording, you’re actually not able
to use a deed of trust in all 50 states. There are several where you can, but not everywhere. And in the ones where you can, part of the reason why you
want to use a deed of trust, is because if that borrower
ever stops paying you, and you have to foreclose on it, a deed of trust could
potentially allow you to go through what they call a non-judicial foreclosure process. Which makes it much
easier and less expensive to repossess your property. But you can only do that if your original deed of trust document includes what’s called the power of sale clause. And as it explains here, a power of sale clause
allows the lender to foreclose on the property, without court procedure, in order to pay off
the balance of the loan in case the borrower defaults. So if you’re gonna use a deed of trust, pretty much in every situation you’re always gonna
want to click Yes here. I have no idea why you
would not click Yes here, unless for some reason the
borrower wasn’t okay with that. But just so you know with all my deals if I’m ever using a deed of trust, I am always clicking Yes on this one. So then once that’s clicked
go ahead and click Continue. And then who is preparing
this deed of trust? This is where you would just put yourself. Or in this case I’ll put myself. Cause I’m literally the one preparing it. There’s not an attorney or title company or anybody else getting
in the mix and doing this. So I’ll put Seth Williams. Put my address. Grand Rapids, Michigan. And hit Continue. And then who should
receive the deed of trust after it’s been recorded? I’m gonna put myself again. Cause I’m handling this closing, and I’m gonna be facilitating
all this documentation. And then click Continue. And then it is now generating
my deed of trust document. And now I can see here the draft of what it’s gonna look like. And what I’m gonna do here is download it. And I can download it as a Word document, as a text file, as a PDF. I’m gonna go ahead and do PDF just to see what that looks like. We’ll open it up here. And then here it is. As you can see all I
really did there was just answer a lot of questions in
the process of creating this, and it went ahead and
generated the document with all of the State-specific
appropriate language included in here. It’s got all of my property information, all of the payment information, the loan amounts, the maturity dates, all the stuff that’s really
important and matters. And I’ll just show you here’s
that power of sale clause. This is that all important
thing we want to have in there, so that the foreclosure
process is easier for us if it ever comes to that. Just a very straightforward easy way to get your documentation handled. And then it’s got the signature
for the borrower/buyer. And then this is the notary page, so they can get that notarized. And that’s really all there is to it. And as you can see, it is very very difficult
for me to make mistakes there when all I have to do is
just answer the questions. And it really holds my hand and tells me exactly what I need to do. Whereas if I just had
like a blank template, that would certainly be helpful as well, and that’s really how I’ve done it most of the time to this point. But still, when you just have a Word document, there’s just a lot more
potential for you to miss things, say if you’re working with an old template and you forgot to update
one little section of it. All of that stuff can cause problems. But with this Rocket Lawyer system, you’re kinda starting with a clean slate. And one other thing
I’ll just show you here, if we want to go back and edit this, say if we saw something in
there that we didn’t like, we can do that as well. And kind of back to my point about how every State is a little bit different, if you click on this, there are some States like I mentioned, where you cannot do a deed of trust. And for example, some of those States
are States like Florida, Connecticut, Delaware. And if you look through this list here, guess what? You don’t see Florida or
Connecticut or Delaware. Or any of the other dozen States where you can’t do a deed of trust. Because Rocket Lawyer
knows you can’t do it. So we’re not even gonna
give you the option of creating that document in those States. So if I had just downloaded a
random deed of trust template, and tried to fill it
out for another State, without knowing that I can’t
even do it in that State, I would obviously have a problem. So this is just another
example of how Rocket Lawyer just sort of holds your hand, and makes sure that you’re doing it right without making any huge mistakes that would be much easier to make if you weren’t using their service. That’s pretty much all there is to it. As you can see it’s very easy to create your documents
with Rocket Lawyer. If you were trying to
create a land contract or a warranty deed, or a quick claim deed, or anything like that, it would be taking you through
a very very similar process to what I just showed you. And the cost of using Rocket Lawyer at the time of this
recording is 39.95 a month or 49.95 a month based on
what benefits you want. There’s also annual pricing. Which is obviously a higher price but you’re gonna save some money on that. I’m currently doing the
monthly subscription for the premium. So I’m paying 39.95 a month. And I just think it’s
been super helpful so far. If you’ve got a business like mine, where you’re working all over the place, in different States, or even if you’re only
planning to work in one State, and you’re just trying to figure
out how things work there, Rocket Lawyer is a great way to just get yourself established and ya. I just thought it was kind
of a brilliant solution. So hopefully you found that helpful. If this looks like the right fit for you, and kind of falls in line with your goals and what you’re trying to do, I’m gonna have an affiliate
link to their website right beneath this video, so you can go check em out. And I will get a small commission from that if you decide to sign up. And I thank you very much for that. And if not, if you’re just using templates and you’re able to get by
without this kind of service, then that’s totally cool too. Anyway, that’s all. I hope you found this video helpful. Thanks for checking it out. Hopefully I’ll see you again soon.

5 thoughts on “How to Prepare a Deed of Trust (Real Estate Seller Financing Tutorial)

  1. My question: Can you correct my deed to a DEED ABSOLUTE so that no codes, statutes or ordinances can be used or enforced against it due to absolute

  2. Do you have a video on preparing deeds when seller is paying cash?

  3. hey, I have a question what happens if the owner/lender declares bankruptcy am I? on the hook too? I'm buying by the way.

  4. Can you learn to prep the deed and get a "contractor position" with a title co?

  5. I sold an empty lot and carry a second deed of trust which was in default and delinquent, the Buyer ask me to subordinate the note to a new lender so he could pay the delinquent first deed of trust, I had no option, but sign otherwise the First deed of trust would have foreclose and I my second deed of trust would have been worthless. My question is can I sell this deed of trust for a discount? the good point is that when I subordinated the deed of trust I have the buyer sign a document personal guaranty of payment. In selling the deed of trust I believe that I have to disclose to the buyer of my not all the information that I have concerning the note (and rightfully so). I sure would appreciate your answer. Could you recommend a realtor or a note agency that could sell my note? I will be looking forward to your reply, thank you.

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