FAQ
What is the difference between a mortgage and a trust deed?
The fundamental difference between trust deeds and mortgages is the procedure followed if the borrower neglects the obligation to pay off the loan and thereby breaks the agreement. If a borrower defaults on a mortgage, the lender needs a court action in order to foreclose on the property; however, with a trust deed default, the lender can act to obtain a remedy without court involvement, which is typically much faster and less complicated than the formal court foreclosure process.
What types of investors participate in the trust deed investments?
Individuals, Family Trusts, Corporations, Self-Directed IRA's, Keoghs, 401K Plans, REITS, Limited Partnerships, Pension Plans and other entities may invest in trust deeds.
Can I use pension funds?
Yes. Trust Deeds can make an excellent retirement plan instrument. You may have to change your plan administrator to a Self-Directed IRA. The source of funds for investing can be an existing IRA or 401K or other pension plan. Many retirement plans can be rolled over into your new Self-Directed IRA.
A partial list of custodians may be found here.
Why are the interest rates for Trust Deed so high?
Our typical borrower is willing to pay 11 or 12% for their loan because it is intended to be a short term financing for a specific purpose, and the funding is needed quickly. Some borrowers have low credit scores, or use the funds to start or complete a construction project. Traditional banks are not in this business, as they take too long to assess the property value and make the loan.
Why are Trust Deed Investments not a mainstream investment?
We meet the needs of borrowers who could not quickly obtain loans or mortgages from traditional sources such as banks, savings and loans, mortgage companies or credit unions. Our trust deeds are not typically sold or securitized on the secondary mortgage market like most conventional mortgages. Consequently, these loans cannot be sold and traded like many other debt-based financial instruments, and are thus not attractive to large corporate financial entities that market rebundle loans to institutional and retail investors.
Is this investment FDIC Insured?
An investment in trust deeds is not FDIC insured.
Are there minimums or maximums for investing?
The minimum investment is $50,000, an amount that would purchase a fractional interest in one trust deed, which can have as many as ten title holders (investors).
What kinds of loans does Capital Alliance make?
Capital Alliance makes bridge and mezzanine loans, mostly on residential real estate in California. These loans are typically written at a coupon (interest) rate of between 11% and 12%, over for a term of 5 to 8 years, but borrowers typically pre-pay before then.
How long is the term of the trust deed investment?
Our loans range from 5 to 8 years. A typical loan will pay off in 18 to 24 months.
How do I see a list of available trust deed investments?
A partial list can be found here, and we also have the capability of originating a loan to your specification. Call 415-288-9575 and ask for Dennis Konczal or Bill Aubrey.
How do I choose which loans are right for me?
Every investor has unique financial goals and investment timetables. That is why we suggest that you discuss your investing preferences with us. We will examine how your investment parameters so that we can recommend loans that will allow you to feel comfortable, secure and satisfied.
What does Capital Alliance do to help me protect my investment?
Our servicing department monitors senior and junior lien holders monthly to verify if there are any defaulted payments. Additionally, we make sure that adequate homeowner insurance is in place in case of a loss.
Are there any fees associated for servicing the trust deeds?
Yes, a servicing and administration fee of 0.75% is charged. For example, if the note rate (coupon or interest rate) is 12%, after the fee is applied, an investor would receive an 11.25% return (annualized), paid monthly.
How are the payments collected and how are the loans serviced?
Capital Alliance has both an in-house loan servicing department and subcontracts to a subservicer named Loan Care who services loans for more than 100 companies in 50 states, and is the 11th in size among the top national subservicers.
How and when do I get monthly payments?
If Capital Alliance is handling the loan servicing, trust deed investors receive their distributions after borrowers remit their monthly debt service payments to us. Unless the borrower is late, we typically pass through distributions either in the first or third week of each month. Investors can choose to have a check, mailed directly to them via the United States Postal Service, or payments can be deposited directly into their bank account via ACH.
What happens if the borrower's payment is late?
As long as repayment ensues (the borrower becomes "current"), there is no penalty to the investor. The investor may receive an additional amount because the borrower is assessed a late fee if the payment is received more than 10 days after the due date.
What happens if the borrower stops making payments?
When payments are 60 days past due, the loan goes from Capital Alliance's subservicer to our default management unit and foreclosure proceedings begin. All efforts are made for the loan not to go into foreclosure—we will assist the homeowner to get back on track, while at the same time protecting the interests of our investors.
Typically, the homeowner refinances or sells the property (paying off the investor loan) or brings all past due payments current before the property sells at a foreclosure auction. The borrower pays all default management fees.
What do I need to do to start investing?
Simply call us at 415-288-9575 and ask for Dennis Konczal or Bill Aubrey, or fill out this online form. You will be surprised at how easy it is to invest with us.
