tel: 888.868.8467
Investing in trust deeds can be a profitable way to generate consistent cash flow while leveraging the security of real estate. However, the success of a trust deed investment doesn’t end with funding the loan. Proper loan servicing is just as critical to protect your investment and ensure steady returns. Unfortunately, many investors make avoidable mistakes that can result in financial loss or unnecessary stress. Below are the top five mistakes investors make when servicing trust deeds—and how to avoid them.
One of the most common and critical mistakes is failing to thoroughly underwrite the loan. Investors often overlook essential factors such as the type of property, the health of the local market, the borrower’s creditworthiness, and their ability to repay the loan. Additionally, miscalculating the value of the underlying collateral can result in an under-secured loan, putting the investor at significant risk if the borrower defaults.
How to Avoid This Mistake:
Conduct comprehensive due diligence. Assess the property’s market value with a professional appraisal, analyze market conditions, and evaluate the borrower’s financial history and repayment capacity. A detailed underwriting process is essential to align loan terms with the level of risk involved.
Another frequent error is failing to provide the borrower with clear instructions regarding payment due dates and payment submission methods. Ambiguity in payment terms can lead to missed payments and strained borrower-lender relationships.
How to Avoid This Mistake:
Clearly outline the payment schedule, due dates, and instructions for submitting payments in writing before the loan begins. Reinforce this communication through regular reminders, especially during the first few months of the loan. Providing clarity upfront helps prevent misunderstandings and ensures smooth payment processing.
When borrowers fall behind on payments, some investors hesitate to act, fearing they might appear overly aggressive. However, delaying action can result in further financial loss, as unpaid balances grow and the borrower becomes less likely to catch up on payments.
How to Avoid This Mistake:
Address late payments immediately. Communicate with the borrower to understand their situation and attempt to resolve the issue amicably. However, remain firm and take decisive action if the borrower cannot provide a clear plan to bring the loan current. Acting quickly helps minimize risk and demonstrates professionalism.
Many investors wait too long to initiate foreclosure proceedings after a borrower defaults, hoping the borrower will eventually catch up. This delay often results in greater losses, especially if the property’s value declines or additional costs, such as property taxes, accumulate.
How to Avoid This Mistake:
If the borrower is unresponsive or unable to meet their obligations, take prompt action to begin foreclosure proceedings. While foreclosure can be a challenging decision, starting the process sooner increases the likelihood of recouping your principal, unpaid interest, and other costs.
Some investors try to manage the servicing process themselves, from collecting payments to tracking loan performance. This DIY approach can lead to errors, missed payments, and compliance issues, especially for investors managing multiple loans.
How to Avoid This Mistake:
Partner with a professional loan servicing company. These companies handle payment processing, borrower communication, and compliance with legal and tax requirements. By outsourcing these responsibilities, you reduce administrative burdens, avoid errors, and ensure consistent loan management.
Servicing trust deeds effectively requires careful attention to detail and proactive management. Avoiding these five common mistakes—failing to underwrite properly, unclear payment instructions, hesitating to address late payments, delaying foreclosure actions, and neglecting to use a loan servicing company—can protect your investment and ensure long-term success. By implementing best practices, you can minimize risk, maximize returns, and enjoy the benefits of trust deed investing with confidence.
TaliMar Income Fund I offers investors the ability to participate in the rapidly growing demand for private real estate debt. The fund is comprised of a diversified portfolio of short-term loans secured primarily on residential single family and multi-family properties throughout California. The fund manager, TaliMar Financial, was established in 2008 and has successfully funded over $500 million in loans. Investors in the mortgage fund include high net worth investors, family offices, and private equity funds who are seeking consistent monthly income, the security of real estate, and the tax benefits of a mortgage fund structured as a real estate investor trust.
Disclosure: This advertisement is for informational purposes only and does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can only be made by the Private Placement Memorandum (“PPM”) and related subscription documents. Any investment in TaliMar Income Fund I involves significant risk. You should not enter into any transactions unless you fully understand all such risks and have independently determined that such transactions are appropriate for you. Business Purpose Loans arranged through TaliMar Income Fund I, LLC (DFPI CFL License No. 60DBO-137778).
Call Us Tap to Call 
