The note and trust deed are legally coupled inseparable and function in tandem

The note and trust deed are legally coupled

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The note and trust deed are legally coupled, inseparable and function in tandem. The note provides evidence of the debt owed but is not filed with the County Recorder. The trust deed creates a lien on property as the source for repayment of the debt in the event of a default. Tax benefits and flexible sales terms portfolio category income Unearned income from interest on investments in bonds, savings, income property, stocks and trust deed notes. The closing documents needed for the carryback
386 Real Estate Principles, Second Edition Form 303 Foreclosure Cost Sheet 1 [See RPI Form 300] 1 Calif. Civil Code §2956
Chapter 57: Carryback financing in lieu of cash 387 A carryback seller assumes the role of a lender at the close of the sales escrow. This includes all the risks and obligations of a lender holding a secured position in real estate – a mortgage. The secured property described in the trust deed serves as collateral, the seller’s sole source of recovery to mitigate the risk of loss on a default by the buyer on the note or trust deed. Another implicit risk of loss for secured creditors arises when the property’s value declines due to deflationary future market conditions or the buyer committing waste . The risk of waste, also called impairment of the security, is often overlooked during boom times. However, a decline in property value during recessionary periods due to the buyer’s lack of funds poses serious consequences for the seller when the buyer defaults on the payment of taxes, assessments, insurance premiums or maintenance of the property. Also, the seller needs to understand a carryback note secured solely by a trust deed lien on the property sold is nonrecourse paper. Thus, the seller will be barred from obtaining a money judgment against the buyer for any part of the carryback debt not satisfied by the value of the property at the time of foreclosure – the unpaid and uncollectible deficiency. 2 However, as with any mortgage lender, if the risk premium built into the price, down payment, interest rate and due date on the carryback note is sufficient, the benefits of carryback financing level out or outweigh the risks of loss. [See RPI Form 303] 2 Calif. Code of Civil Procedure §580b Carryback risks for the seller nonrecourse A debt secured by real estate, the creditor’s source of recovery on default limited solely to the value of their security interest in the secured property. Seller financing, also known as carryback financing, occurs when the seller carries back a note for the unpaid portion of the price remaining after deducting the down payment and the amount of the mortgage the buyer is assuming.

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