Trust Deed Investment Glossary Joffrey Long

Find out the definitions for different terms related to trust deed investments, including:
  • Commonly used terms you may encounter when investing in trust deeds
  • Specific to California, trust deed investment terms used primarily or largely in this state
  • Generally accepted terms regarding trust deed investments, which are not specific to California
  • Links to other websites for finding out more about how to invest in trust deeds
Definitions pertain to trust deed investments, consisting of whole loans, or fractionallized trust deeds. In addition, the definitions listed may relate primarily to trust deeds in California.

Trust deed investments are actually real estate loans or an interest in real estate loans, (called fractionalized loans) that are evidenced by promissory notes, secured by trust deeds. Where the term "mortgage is commonly used when referring to these loans, the actual "mortgage" document and related set of terms is seldom, if ever, used in California, and is more common to certain other states.

California trust deeds involves three parties:
  • The trustor (the borrower)
  • The trustee (a third party holding an equitable title interest)
  • The beneficiary (the lender)

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Calling a loan "due and payable," meaning that the entire balance must be paid in full.  Usually a loan secured by a trust deed is accelerated due to some type of default on the part of the borrower.

Advances Amounts of money advanced by a lender, on behalf of the borrower, to protect the lender's interest in the secured property, such as advances for property taxes and hazard insurance.

Transfer of property without consent of the lender, when the real estate loan agreement forbids such transfer.

Appraisal An estimate of value, usually performed by a licensed appraiser. Appraisals for homes and smaller 2-4 family dwellings and condominiums commonly use a "sales comparison" approach, while properties such as apartment or commercial buildings held primarily for the production of income use the "income approach." 

Assignment of
 Trust Deed
A conveyance, generally recorded, of a full or partial interest in an existing deed of trust. The intent of recording an assignment of a deed of trust is to provide public (recorded) notice of the assignee's (trust deed investor's) interest in the trust deed.

Balloon Payment
Generally, a balloon payment refers to a clause in a note or mortgage that requires the entire balance due on the loan to be paid off in full at a certain date. The actual definition of a balloon payment is "any loan payment required, that is more than twice the amount of the smallest payment required in the loan."

Beneficiary (Usually the trust deed investor) The party whose interests are secured by the deed of trust (holder of the beneficial interest).

Closed End Loan Another term for a single advance loan, more commonly used when contrasting a closed end loan with an open end loan. (See "open end loan").

Collateralize Applies to the use of notes or mortgages as collateral for a debt or other obligation. Collateralized loans or mortgages have been pledged as collateral for debt. (Often used in referring to investments in a pool that holds mortgages.) Investors are provided with certificates that are secured by the "collateralized" notes or mortgages.

Construction Loan A loan providing funds for construction or major improvements to real property. Often, construction loans are made based on the future (completed) value of the proposed improvements.

Cross-Collateralize The securing of a loan by more than one parcel of real estate. Also referred to as a "blanket encumbrance." Loans can be generally be cross-collateralized by recording separate deeds of trust, one on each parcel being used as collateral, or by recording one deed of trust that properly describes all of the parcels being used as collateral.

Default Failure of the borrower to comply with any one or more requirements
of the note or trust deed (usually a failure to make required payments).

Default Interest (rate) A higher interest rate that is charged only if the borrower defaults on the regularly required loan payments. Usually, if the borrower makes all payments as required, the default interest rate would never go into effect.

Document /
or Instrument /
Recording Number
A number placed on a document by the county recorder, when accepting that document for recording, that indicates the time and date of recording, as well as the fact the document was recorded in that county. Primarily referred to as "doc number" or "instrument number".

Encumbrance A lien, judgment, deed of trust or other claim against real property, generally recorded in public records.

Escrow A third party stakeholder who holds funds or documents on behalf of others, pending their instructions. The term escrow is commonly used to refer to escrow companies who act as escrow holders in real estate sales and loan transactions. The term escrow is also used to refer to impound (sometimes called escrow) accounts held by lenders, where borrower's funds are set aside for taxes, insurance and other charges.

Estoppel Certificates executed by tenants or other holders of interests in real property, confirming the terms of their tenancy or lease, the amount of rent, deposits, and other agreements existing between themselves and the property owner.

Financial Code 4970 A California law, similar to HOEPA, which imposes somewhat stricter limits and regulations on "hard money loans" that exceed specified rates or fees, when made to owner/occupants of one to four family dwellings.

Forbearance An agreement between a lender and a borrower, where the lender agrees to "forbear" and not to foreclose or take other action against the borrower and the borrower agrees to the payment of certain sums of money and/or the performance of other acts required by the lender (such as the payment of property taxes, maintenance of the property, etc.).

An involuntary transfer of real property title from the borrower to the lender, or to a third party bidder at a trustees sale, resulting from the borrower's failure to make the required payments or to comply with one or more of the other terms of a mortgage or trust deed.

Fractionalized (split into percentages)  In trust deed investing, applies to a loan being provided by two or more investors, where the note and deed of trust is issued in the names of the various investors in accordance with their percentage (fractionalized) share of ownership.

Fractionalized Loans See Fractionalized Trust Deeds

Trust Deeds
Fractionalized trust deeds are deeds of trust with different investors, each owning a certain percentage interest in the note and trust deed. For more information, visit

Full Credit Bid An opening bid amount at a trustees sale, set by a lender, which includes the full amount of the debt owed including late charges, interest, penalties, allowable third party fees and trustees fees.

Future Value An appraised value, based on the completion of certain improvements that are not actually complete at the time the appraisal is done. These appraisals are usually based on plans showing what improvements are to be completed and the appraised "future value" is contingent on completion of those improvements.

Hard Money
(also referred to as private money)
Generally applies to hard money lenders or hard money loans - loans made with private investor funds, as opposed to loans made by institutional lenders (see institutional loans/lenders).

Hard Money
Direct Lender

Companies or individual who actually make hard money loans (private money loans) with their own funds, as opposed to those who attempt to find other individuals or companies that have the ability to provide funds for the loan.

Hard Money
Expert Witness

An individual with advanced experience, skill and knowledge in the area of loans that are made or arranged with private, non-institutional funds, which are referred to as hard money loans or private money loans. A "hard money expert witness" could also be referred to as a "private money expert witness." (see:

Hard Money
Wholesale Lender

A lender who is a hard money direct lender, as described above, but also accepts submissions of real estate loan requests from loan originators or loan brokers. These originators / brokers typically bring the borrower and often provide certain information about the borrower to the wholesale lender, so that the wholesale lender can actually fund the loan, and the broker / originator is paid fees for the services that they provide.

HOEPA The Home Ownership and Equity Protection Act.  A law, passed as section 32 of RESPA and as an amendment to TILA, imposing stricter limits and regulation on certain loans made to owner occupants of one to four family residences, and exceeding specified rates or fees.

Institutional Applies to loans made or serviced by institutional lenders, often banks, credit unions, insurance companies or large mortgage banking companies. Institutional loans generally have more stringent credit and income requirements (particularly now), forcing many property owners into hard money type loans.

Junior Lien
(see "Senior Lien")
A deed of trust or lien recorded after another deed of trust or lien, therefore causing it to be "junior" in lien priority to that earlier recorded deed of trust or lien.

Evidence or a notice, recorded in the public records against a particular property or individual, of a debt or other obligation.

Loan Disclosure Statement A statement provided to a borrower by a loan originator, loan broker, or direct lender that spells out for the borrower, among other things, the interest rate, payments, existence of balloon payments, late charges and pre-payment penalties, and numerous other facts that might influence the borrower's decision to enter into the loan transaction.

Loan Servicing
The collection of payments; maintenance and provision of records; filing of required tax documents; monitoring of property tax and insurance payments; handling of delinquent loan payments; modification, forbearance and foreclosure; issuing of payoff statements and any other activity required to successfully collect, account for, and distribute funds due under a note or mortgage (see:

Modification A mutual agreement between a borrower and a lender, to modify the terms of a mortgage, including, among other things, a change in the interest rate, monthly payment, due date, and/or principal balance.

Mortgage Document(s) evidencing a debt and securing it by real property.  Contrary to a note secured by a deed of trust, a mortgage (which is almost never used in California) does not contain a "power of sale clause," which means that the lender must go through a judicial foreclosure (a lawsuit) to obtain title to the property.  Generally, the trust deed that secures a note in a typical California loan transaction will contain a "power of sale," enabling the trustee under the deed of trust to conduct a "non-judicial" foreclosure and sale of the property.

Mortgage Fund An entity formed to hold securities, including trust deeds, for investment purposes.  Typically, mortgage funds are set up as limited liability companies, and investors are issued  certificates indicating their membership in the limited liability company.   The terms mortgage fund and mortgage pool are used interchangeably.

Mortgage Pool (See definition for Mortgage Fund)

National Mortgage
Licensing System
(NMLS) A licensing system put into effect on January 1, 2011, requiring originators of consumer loans secured by one to four family residences obtain an NMLS endorsement to the current license under which they originate loans.

NMLS Endorsement A license endorsement issued under the National Mortgage Licensing System.

Notice of Default A notice recorded with the county recorder, indicating that a loan secured by a deed of trust is in default and beginning the foreclosure process. Recordation of a notice of default begins a 90 day period during which the borrower can reinstate the loan by resolving the default (usually paying payments and late charges due) and paying any fees associated with the notice of default.

Notice of Trustees Sale A notice recorded with the county recorder, indicating that specific real property, that is the security for a loan secured by a deed of trust, will be sold at a trustees sale auction at a specific time, date and location. The notice of trustees sale references a minimum bid price.  However, the beneficiary has the option of opening the bidding at, and accepting a bid lower than the published minimum bid price.

Open End Loan A loan that allows for additional advances of loan proceeds to the borrower, even after closing of the initial loan transaction. Construction loans, home equity lines of credit, and reverse mortgages are all examples of open end loans.

Opening Bid The initial bid, or starting bid at a trustees sale auction of real property collateral. The opening bid cannot exceed what is referred to as a "full credit bid," being the total amount of the debt owed, including late charges, interest, penalties, allowable third party fees, and trustees fees. It can, however, at the beneficiary's option, be set at any amount lower than the amount of what would be a full credit bid.

Partial Interest Loan A loan secured by a partial interest in real property, where only one of multiple owners has used their interest in the property as collateral for a loan. In this case, a lender foreclosing on a partial interest would acquire only that interest and would then become a co-owner with the owner(s) of the other interest(s).

Partial Reconveyance
(Partial Release)
A release of one of several parcels, all of which secure the same loan.

Points A method of calculating or expressing loan origination or loan brokerage charges on a real estate loan. Usually one "point" is equal to one percent of the loan amount.

Power of Sale A power granted to the trustee in a deed of trust, empowering the trustee to conduct a non-judicial foreclosure sale of the property upon default. It should be noted that when contrasting mortgages (see definition of mortgage) to notes secured by trust deeds, the primary clause that sets the mortgage apart from the trust deed is that it lacks the "power of sale," requiring the holder of a mortgage to file a lawsuit (a judicial foreclosure) in order to foreclose on the property.

Preliminary Title Report A report on aspects of the condition of title to real property based primarily on facts available in public records. Preliminary title reports (commonly referred to as "prelims") may contain a legal description, information as to who holds recorded title, information about the amount and status of property taxes and information about recorded trust deeds, liens and judgments against the property. Preliminary title reports are a title company's "offer to insure" title.

Private Money (see Hard Money)  Refers to loans made with funds provided by private, non-institutional lenders, or provided by hard money direct lenders (hard money wholesale lenders). The terms "private money" and "hard money" are interchangeable.

Reconveyance A release, executed by the trustee under a deed of trust, releasing the trustee's equitable interest, and removing the encumbrance that was originally created by the deed of trust.

Real Estate Settlement Procedures Act.  A law impacting costs and procedures relating primarily to settlement charges. RESPA also contains section 32, which imposes stricter limits and regulation on certain loans exceeding specified rates or fees.

Request for Notice A recorded notice, either recorded as a separate document or in the body of a recorded deed of trust, that provides notice to the holders of senior encumbrances, requiring them to provide written notice upon filing a notice of default.

Section 32 (RESPA)

Senior Lien As documents are recorded in pubic records, their order of priority is established. Generally, a document recorded on March 15 of 2011 will have recording priority, or a "senior" lien position to a document recorded on March 16 of 2011, and therefore would be referred to as a senior lien.

Single Advance Loan A loan where all of the loan proceeds, or the entire amount of the loan is all paid out at the time the loan initially closes.

Single Asset Entity An entity, such as a limited liability company, a limited liability partnership, or a corporation that holds only one asset, such as one commercial building. Entities of this type are formed by borrowers, usually at the request of lenders. These entities allow the lender to have only the single asset entity as the borrower, thereby separating the asset from other assets, liabilities and activities of the entity that owns the property (for example, the entity owing the property might be a nationwide chain of retail stores). This generally avoids or limits the lender's involvement as a creditor in a large scale bankruptcy involving the larger entity.

Subordination When the holder of a priority position (in the order of recording) of a trust deed subordinates or takes a place "behind" (lower in the order of recording) another trust deed and allows that trust deed to have a priority position over it that it would not otherwise have.  

Example: Lender A holds a first trust deed.  Lender B agrees to make a new loan, only if allowed to be the first trust deed.  If lender A is not being paid off, but lender A will agree to subordinate their first loan to lender B's new loan, then lender B will have a first trust deed, and lender A will now have a second trust deed, having subordinated their lien position.

Substitution of Trustee
The appointment of a different trustee other than the current trustee named in a deed of trust (see "trustee" and "deed of trust"). This is usually done at the time of foreclosure filing or at the time of reconveyance (see "reconveyance") when a beneficiary (lender) wishes to have a certain trustee conduct the foreclosure or issue the final reconveyance.

The Truth in Lending Act.  A law impacting disclosure in loans made primarily for personal, family or household purposes.

Title Insurance Insurance issued to buyers of, or lenders on real property, insuring their interests in the recorded transfer of title or encumbrance(s) recorded against the property. Title insurance also insures validity of the "chain of title" or the series of title transfers that occurred over the years, resulting in the current ownership of the property.

Trust Deed A recorded document that secures a promissory note or other type of promise.  A deed of trust differs from a mortgage in that a deed of trust contains a power of sale and provides the beneficiary (lender) with the choice of foreclosing though judicial or non-judicial foreclosure.

Trust Deed Investments Investments in trust deeds, often by individuals, their IRA plans, company 401K plans, or company pension plans (see:

Trustee A third party named in a trust deed, who holds an equitable interest in property to secure the lender's beneficial interest. Or, can refer to the trustee in a trust, generally an individual, who holds the power to execute documents or make management decisions for the trust.

Trustee's Deed A deed issued by a foreclosure trustee, conveying title to the foreclosed property to the successful bidder at the trustees sale. Or, in the event there are no bidders, a trustees deed would be issued conveying title to the foreclosing beneficiary.

(the borrower)
The person or entity executing a deed of trust to encumber property for the purpose of securing a note.

An interest rate exceeding the usury limits is considered usurious, and therefore illegal. Some trust deed investments are in loans that would exceed the allowable interest rates under the usury laws, but may be exempt from usury if they were made or arranged by a licensed California real estate broker.

Southwest Bancorp (dba Southwestern Mortgage)
Joffrey Long   (818) 366-5200

    17045 Chatsworth Street, Suite 101, Granada Hills, CA  91344-5845

Calif. Dept. of Real Estate Licenses:
00898122 (Southwest Bancorp) and 00525142 (Joffrey Long

National Mortgage Licensing System (NMLS)
285731 (Southwest Bancorp) and  207272  (Joffrey Long)

Joffrey Long
Private Money (Hard Money) Direct Lender / FHA and Conventional Loans /
Reverse Mortgages / Trust Deed Investments /

Trust Deed Investments

Joffrey Long is President of Southwest Mortgage and has worked in trust deed lending, trust deed investments and loan servicing for 35 years.  He is a member of the California Mortgage Association (CMA), where he has served as past Chair of the Education Committee, a member of the Board of Directors and Past President of the association.   He is sometimes called upon to provide expert witness consultation or testimony in mortgage related cases.

Information about mortgage expert witness testimony can be found at

  • Definitions contained here are not presented as all or part of a standard of care, an accepted practice in the industry, or as all or part of a representation of the duties of any broker, lender or other originator of loans. 
  • They are presented so that investors, lenders, practitioners and other parties interested in trust deed investments can better understand terms when discussing the meaning of the terms with their qualified attorneys and advisers. 
  • No party should attempt to use or in any way rely on definitions provided here, or in any way interpret the definition of any document, writing, communication or other information, based on any definition provided in this set of definitions, without thorough review and discussion with qualified counsel and other advisers, as to the definition of a word or phrase as it applies to their particular question, investment, decision or application to their circumstance.

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