Trustee

Trustees play an essential role in the hard money loan process. These neutral third parties are responsible for upholding the interests of both parties: the borrower and the lender. Read on to learn more about trustees, how they work, and how they relate to hard money loans. 

In the loan process, a trustee is a neutral third party who holds the title to a property throughout the duration of the loan. While the trustee does not permanently own the property, they hold the title via a document known as a trust deed, which legally grants them temporary ownership of the property until the loan is settled. 

While trustees aren’t used in traditional mortgages, they are central to the hard-money loan process. A trustee protects the interests of both the borrower and the hard money lender. 

The trustee’s job is to act according to the terms of the loan. If the borrower repays the loan, the trustee issues a Deed of Reconveyance, which transfers legal and permanent ownership back to the borrower. 

If the borrower defaults and the lender forecloses on the property, it’s the trustee’s responsibility to carry out the foreclosure. They place the home on the market, sell to the highest bidder, and pay back the loan and any other debts with the proceeds of the sale. In the event that funds still remain, the trustee returns them to the borrower. 

See trustees in action in these real-world scenarios.

An investor uses a commercial property to secure a hard money loan for a new property purchase. They sign a trust deed that temporarily transfers property ownership to a trustee. They purchase the new commercial property, rent it out, and use the rental proceeds to pay back their hard money loan. The trustee records a Deed of Reconveyance, lifting the lien on their property and transferring ownership back.

An investor takes out a residential hard money loan using an existing residential property as collateral. They sign a trust deed, giving temporary ownership of the collateral property to their trustee. They use the loan to purchase a new residential property.

They plan to pay back the loan using future rental income, but they fail to find renters and default on their loan. Their lender opts to foreclose. The trustee sells their collateral property and uses the proceeds to pay back the hard money lender. They return the remaining proceeds of the sale to the investor.