A Trust Deed Note Investment is created when an Investor purchases a Promissory Note and Deed of Trust. At such time, the investor becomes “the bank” and holds a legally negotiable instrument that is secured by real property.

The Mortgage Lending process is characterized by the arranging of a loan to a borrower who executed a Promissory Note and Deed of Trust (Trust Deed) secured (recorded against) the real property. The Promissory Note is the borrowers promise to repay the loan, and the Deed of Trust is a security instrument (lien) recorded against the borrower’s real estate.

Trust Deeds are saleable instruments that are regularly sold in the secondary mortgage market. There is an active participant in a smaller sub-market referred to as Private Mortgage Lending. This market consists of private investors that purchase Trust Deeds seeking higher returns from a secured mortgage and earn the interest due under the terms of the Note.

The Private Mortgage Lending market evolved from the demand from borrowers who could not obtain loans through conventional sources, because of poor credit, unverifiable income, time prohibitive situations, yet they had sufficient equity in their properties. Loans were made to borrowers based on their protective equity and new first or second mortgages were created. The benefit to the lender and private investor is that these have higher interest rates, typically 10% – 15%.

Private Mortgage Loan opportunities are great for investors where double-digit returns can be realized from these very attractive and secured investments. The risk associated with these loans is very acceptable since the amount of protective equity in the property provides protection to the investor against payment defaults, market fluctuations and property devaluation.

Protective Equity is what provides security to the Trust Deed. AtVantage Capital Fund, LLC typically requires that every property it lends against has a minimum of 30% to 35% protective equity. To illustrate, if a property has a Fair Market Value of $500,000, the fund restricts the loan to a maximum of $350,000; conversely, we would not permit a loan any higher than 65% to 70% of the Fair Market Value; also referred to as the Loan-To-Value Ratio.

Typically, the lower the LTV, the better and more attractive the Trust Deed Investment is, thus warranting consideration for the fund. Since the amount of protective equity directly relates to the security of the Trust Deed, it is fair to say that the primary risk to the investor relies on the amount of protective equity remaining in the property.