California COVID forbearance is ending, and we may have a solution. But is using a deed of trust in California to repay COVID forbearance a good idea?
The COVID-19 pandemic has affected the California housing market in many ways. Many borrowers took advantage of government forbearance programs to avoid defaulting on mortgages.
However, this was always meant to be a temporary solution that would eventually end. Borrowers now need to find a way to repay their debts.
This article will explore what a deed of trust in California is, what the rules of COVID forbearance are, and how trust deeds can help California borrowers repay their COVID forbearance.
What’s your loan scenario?
What is a deed of trust?
A trust deed, also commonly called a deed of trust, acts as a functional equivalent to a mortgage but does not transfer real estate ownership like a typical deed.
The idea behind a trust deed is to utilize real estate as collateral for a loan. In cases of default, the deed of trust enables the lender to recoup the cost of the loan without resorting to the complicated processes that a standard mortgage brings.
A promissory note is always used with a trust deed to specify the loan amount and terms. The property owner signs it, agreeing to repay the loan.
The trustee, a third-party, gains legal ownership of the property, but the borrower retains control as long as they meet the loan payment and trust deed obligations.
The flexibility of a deed of trust in California
The advantage of a California trust deed over a mortgage is that it allows for a faster and cheaper process if the borrower defaults—making them especially attractive to hard money lenders like Marquee Funding Group compared to conventional mortgages.
With a standard or conventional mortgage, the lender must go through a judicial foreclosure process if the borrower defaults, which can take years and cost thousands of dollars in legal fees.
Borrowers with low credit scores or real estate investors who need more flexibility in their repayment schedule will frequently turn to hard money lenders. In turn, trust deeds make the deal much more accessible and an incentive to hard money lenders.
How a deed of trust can be better for real estate deals in California
Trust deeds are commonly used in real estate investing to provide financing for properties. Investors can invest in trust deeds by buying fractional ownership in the loan.
The investor receives a portion of the interest payments made by the borrower and a portion of the sale proceeds if the property is sold.
What does forbearance mean?
Essentially, a forbearance allows you to pause or reduce your mortgage payments temporarily, but it doesn’t erase what you owe. You’ll still need to repay any missed or reduced payments at a later time.
The availability of forbearance options depends on your loan type, with different provisions for government-backed and private loans.
Under the CARES Act, federal government-backed loans offer temporary payment suspension for those affected by coronavirus-related financial difficulties.
Non-government loans may also have forbearance or deferment options, but these will vary by lender.
What happens when COVID forbearance ends?
Many California borrowers have taken advantage of the forbearance programs during the COVID-19 pandemic. The CARES Act forbearance program allowed borrowers to pause their mortgage payments without penalty.
As mentioned before—forbearance is not loan forgiveness—and borrowers will eventually need to repay their missed payments.
When forbearance ends, borrowers will need to either pay the missed payments in a lump sum or add them to the end of their loan term. This rule can be a significant financial burden for landlords, especially those who have been out of work or had reduced rental income during the pandemic.
How trust deeds help borrowers repay COVID-19 forbearance
Trust deeds can be a useful tool for borrowers who are struggling to repay their forbearance.
One option is to use a trust deed to get an owner-occupied second mortgage. This mortgage product allows the borrower to use the equity in their home to get a loan to repay their missed mortgage payments.
An owner-occupied second mortgage is a loan secured by the borrower’s home. The loan is in the second position behind the first mortgage and is used to pay off the missed payments.
The borrower then makes payments on the second mortgage until it is paid off.
Using a trust deed to get an owner-occupied second mortgage can be a good option for borrowers with home equity who can afford the additional loan payments.
This plan has the potential to avoid having to come up with a lump sum payment to repay their forbearance.
Using trust deeds for California owner-occupied properties
In conclusion, trust deeds can be a useful tool for California borrowers who are struggling to repay their forbearance during the COVID-19 pandemic.
By using an owner-occupied second mortgage, borrowers can use the equity in their home to repay their missed mortgage payments and avoid defaulting on their loan.
However, it’s important to remember that trust deeds come with risks, and borrowers should talk to a hard-money specialist, like Marquee Funding Group before taking out a second mortgage.
If you’re a California borrower unsure how to repay your COVID forbearance, consider using a trust deed to get an owner-occupied second mortgage. This option can be a good idea for borrowers who can afford the additional loan payments and have enough lendable home equity
The benefits of Marquee Funding Group
The greatest benefits of using a hard money lender for a second mortgage are flexibility and speed. Marquee Funding Group has same-day approvals available and can close a deal as fast as ten days depending on the loan scenario.
In contrast, HELOCs can take a minimum of 30-45 days to close. If you have a financial deadline approaching, time can easily be of the essence.
Marquee Funding Group also offers:
- Common-sense underwriting
- Loan amounts from $50,000 to $20 million
- Purchase money, rate-and-term refinance, and cash-out refinance options
Above all else, Marquee Funding Group strives to provide a professional, smooth experience for both borrowers, brokers, and investors. Building relationships is important to us. We aim to be as open and upfront as possible about the details of your deal to ensure that the borrowers get the best deal possible.
If you already know what you need—submit your loan scenario now— and we will contact you as soon as possible.
Photo by Andrea Piacquadio