- 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.