Trust Deed FAQ’s

Q: What is a Trust Deed?

A: A trust deed is the most common method of financing real estate purchases in California. Other states may use the term "mortgage." Specifically, a trust deed is a claim against real estate similar to a mortgage but the title is held by a third party called a Trustee for the Beneficiary.

Q: What are Whole Trust Deeds?

A: A whole trust deed has one single lender (husband and wife are counted as one) who owns 100% of the note and trust deed. Preferred by investors with large portfolios where they have funds to adequately diversify their investments. These loans are subject to less government review than fractionalized loans.

Q: What is a Fractionalized Trust Deed?

A: Investors purchase undivided interest in single notes secured by the same property. In the industry, these are referred to as multi-lender transaction or fractionalized loans. Normally, multiple-lender loans accommodate up to ten lenders (husband and wife are counted as one) in such loans.

Q: What is a First Trust Deed?

A: A first trust deed is a legal document pledging collateral for a loan that has first priority over all other claims against the property except taxes and bonded indebtedness. It is recorded first and is superior to all others.

Q: What is a Second Trust Deed?

A: A second trust deed is a claim against the property that has been recorded after the first trust deed. With a second trust deed you are in a second position of ownership.  If for some reason the property needs to be sold. The first trust deed holder would be paid first because he is in first position. Then, if there is money remaining the second trust deed holder would be repaid. This is often a riskier form of investment.

For example: A first trust deed valued at $300,000 has been recorded and then a year later a second trust deed is recorded for $100,000. In our example the property goes to foreclosure and is sold for $350,000. At the time of sale, the first trust deed holder would be paid $300,000. The second trust deed holder is in second position, and would only receive $50,000.

Q: Who can invest in trust deeds?

A: Trust Deeds are offered exclusively to qualified investors who are California residents and who meet certain minimum standards of income and/or net worth:

A:  Only residents of California
B:  Those who have a net worth of at least $250,000 [excluding home, furnishings and automobiles].
C:  Those who have a net worth of at least $65,000 [excluding home, furnishings and automobiles] and an annual gross income of at least $65,000.

Q: What is the rate of return on a Fractionalized Trust Deed?

A: For up-to-date return rates please see our current yields page by clicking on the link in this section, the site map or navigation bar.

Q: How liquid are Trust Deeds with Vanguard Funding Corp.?

A: Trust deeds are not a liquid investment. Our current trust deeds are written for a period of 24 months. Investors that elect trust deeds are advised that their money will be invested for the life of the note or until the borrower pays the note in full.  As in previous examples, borrowers do not have a pre-payment penalty and can pay the balance of their note at any given time. On average our borrowers repay their notes between 12 and 18 months, not the full 24 months.

Q: How do I begin investing in Trust Deeds with Vanguard Funding Corp.?

A: Once you meet the suitability requirements and are ready to invest, contact one of our investment representatives and they will guide you through the various steps. 

A Vanguard Investment Representative will advise you regarding the current California first trust deeds available for investment. You can then choose an investment that is right for you. Next you will be asked to fill out and sign a Vanguard Funding Corp. loan servicing and disclosure agreements. Once the agreements have been signed, you need only to return them to Vanguard along with a check for the investment agreed upon.

You can also make an appointment and stop by our office to complete the process.