Notarize a Note? and Trustee on DOT

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regfman
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Notarize a Note? and Trustee on DOT

Post by regfman » Thu Aug 25, 2016 8:16 pm

I am loaning money to a friend and he is securing the loan with a deed of trust on a piece of property that he owns completely and has no other loans against it.

I have a document titled "NOTE SECURED BY DEED OF TRUST (STRAIGHT NOTE)"

It states the amount of the loan and the terms with beginning and end dates.

It then states that the note is secured by DEED of TRUST of even date herewith on real property whose address is [the property that I mentioned above] with the lot number.

As for the Deed of Trust of that property, my friend and I took the "DEED OF TRUST AND ASSIGNMENT OF RENTS" to a notary and my friend signed it and had it notarized and then we both took the deed of trust document to the county recorder and submitted it.

That deed of trust says:
"This DEED OF TRUST, made [date- there is a question here], between [my friend], and unmarried man, herein called Trustor, whose address is [his address] and [Title company (big question about this???)] herein called TRUSTEE, and [me], herein called BENEFICIARY,
WITNESSETH: That Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO TRUSTEE IN TRUST WITH POWER OF SALE, that property in the [location].......

For the Purpose of Securing: (1) Performance of each agreement of Trustor incorporated by reference or contained herein. (2) payment of the indebtness evidence by one promissory note of even date herewith, and any extension or renewal thereof, in the PRINCIPAL SUM OF [amount on the note document that I have]."

Then there is a bunch of stuff that I won't copy into my question here.
This Deed of Trust document was signed and notarized by my friend and was submitted to the recorder and we have copies of it.

Here are a few questions:
My friends signature on the DOT states that I am the beneficiary and that signed document was notarized and recorded.

(1) The DOT mentions the amount of the loan but does not discuss the terms of the loan. The county recorder says that she doesn't record the note, just the DOT. Should the note be notarized? And it seems like it is a pretty important piece of paper that must not be lost. Would I be in trouble if the note was lost in a fire? How is this supposed to be kept?

(2) And here is where it gets bizarre. This DOT was prepared by a mutual friend that is not an attorney but writes some of these DOTs for himself. My friend and I used him to write this. He said he placed the name of a Trust company as the Trustee. When I asked him why he picked that company he said he had pulled the form from an online source and that it didn't make any difference who it is, it is just supposed to be any non-biased party, other than the Trustor or Beneficiary. It seems strange that one can simply put the name of an entity as the Trustee without them even having any knowledge that they have been selected to be the trustee. What am I missing here?

(3) What does the phrase "of even date herewith" mean? Does the date on the note have to agree with the date on the DOT? The date on the note is one day earlier than the date recorded on the DOT. Is that a problem?

Thanks for any advice.
Reg

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dm200
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Re: Notarize a Note? and Trustee on DOT

Post by dm200 » Thu Aug 25, 2016 8:19 pm

Engage and pay an attorney , qualified and experienced, to do this right.

regfman
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Re: Notarize a Note? and Trustee on DOT

Post by regfman » Thu Aug 25, 2016 8:26 pm

Thanks for the quick response. Yes, your comment is fundamentally good advice, but do you have any specific knowledge of the issues I bring up, and answers to my specific questions?

I would like to learn about this from someone that knows this area.

Thanks,
Reg

123
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Re: Notarize a Note? and Trustee on DOT

Post by 123 » Thu Aug 25, 2016 8:31 pm

What state is the property in? What state was the Note/DOT notarized in? What state does the borrower reside in?
The closest helping hand is at the end of your own arm.

regfman
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Re: Notarize a Note? and Trustee on DOT

Post by regfman » Thu Aug 25, 2016 11:44 pm

"What state is the property in? What state was the Note/DOT notarized in? What state does the borrower reside in?"

California, California and California.

roflwaffle
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Re: Notarize a Note? and Trustee on DOT

Post by roflwaffle » Thu Aug 25, 2016 11:45 pm

For (1), see SuzBanyan's post below. You might be able to file a UCC to establish priority, but I'm not sure about that either.

http://saclaw.org/wp-content/uploads/sb ... y-note.pdf

Having a title company as Trustee can be normal (2), especially if they offer related services (foreclosure, etc...)

The "of even date herewith" in (3) I think implies that the Deed and note were dated with the same date, and might present a problem in certain situations.

http://www.poynerspruill.com/publicatio ... rrors.aspx

A lot of this is local, so I'd search for any info that's specific to your state and consult a lawyer with experience in title insurance.
Last edited by roflwaffle on Fri Aug 26, 2016 2:39 pm, edited 1 time in total.

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celia
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Re: Notarize a Note? and Trustee on DOT

Post by celia » Fri Aug 26, 2016 1:52 am

How do you know there weren't any other liens/mortgages on the property? What will keep him from getting other liens/mortgages on the property in the future before he's paid you back?

If you and your friend both die in the same accident, how will both of your estates figure out what to do?

These are all paper trail questions you should have found out about from a lawyer before you lent the money. (I don't have any answers.)
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

SuzBanyan
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Re: Notarize a Note? and Trustee on DOT

Post by SuzBanyan » Fri Aug 26, 2016 9:40 am

roflwaffle wrote:For (1), I would think you would also have the promissory note recorded. That's what's supposed to happen in CA at least.

http://saclaw.org/wp-content/uploads/sb ... y-note.pdf

Having a title company as Trustee can be normal (2), especially if they offer related services (foreclosure, etc...)

The "of even date herewith" in (3) I think implies that the Deed and note were dated with the same date, and might present a problem in certain situations.

http://www.poynerspruill.com/publicatio ... rrors.aspx

A lot of this is local, so I'd search for any info that's specific to your state and consult a lawyer with experience in title insurance.

I've never seen a promissory note recorded in CA. The lender should hold on to the Note and return it to the borrower once the loan is paid in full.

If the original note is lost, the lender MAY need to pay for a lost instrument bond if there are any concerns that the note was transferred. In most cases, there are no such concerns and the lender provides the borrower an indemnity that protects the borrower due to the lender's loss of the original note.

Many Deeds of Trust are based on standard forms from title companies or other third parties, but not all. Title insurance would protect the lender against a prior lien that the borrower may have "forgot."

regfman
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Re: Notarize a Note? and Trustee on DOT

Post by regfman » Fri Aug 26, 2016 10:48 am

Thanks for the links and advice.

From the links I've learned how a Trust company was called out as the Trustee, on the DOT. That same linked article mentions that the Note is recorded which apparently isn't accurate. I guess it wouldn't hurt to get the Note notarized and I intend to do that.

I think I do have something to worry about that the date of the DOT is one day off from the date of the Note so I will get my friend to sign a new note with the correct date.

Another issue has also come up: the DOT in the first line says "This DEED OF TRUST, made August ___ 2016".... and I now notice that we forgot to fill it in at the time of submitting it to the county recorder and the county recorder did not notice that missing date. But she accepted the document and returned it to us with a recorded stamp on it with the date and even the time. I wonder if the time stamp suffices for the missing date that we were intended to hand write on the DOT in the underlined blank space. If that doesn't suffice then we will have to resubmit another DOT.

As for the question about title search, the friend that helped out said that he did the title search. Plus we looked at what was recorded at the county recorder about that property and about my friend and nothing comes up. Our mutual friend that wrote the doc has done title searches before professionally. I do realize that when I don't use a title company I am forgoing the insurance that comes with that, but in this situation I am willing to take the chance about that.

The points about the complications that can arise someday if/when both me and my buddy are gone, are definitely something on my mind.

Thanks for the input.

roflwaffle
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Re: Notarize a Note? and Trustee on DOT

Post by roflwaffle » Fri Aug 26, 2016 2:38 pm

SuzBanyan wrote:
roflwaffle wrote:For (1), I would think you would also have the promissory note recorded. That's what's supposed to happen in CA at least.

http://saclaw.org/wp-content/uploads/sb ... y-note.pdf

Having a title company as Trustee can be normal (2), especially if they offer related services (foreclosure, etc...)

The "of even date herewith" in (3) I think implies that the Deed and note were dated with the same date, and might present a problem in certain situations.

http://www.poynerspruill.com/publicatio ... rrors.aspx

A lot of this is local, so I'd search for any info that's specific to your state and consult a lawyer with experience in title insurance.

I've never seen a promissory note recorded in CA. The lender should hold on to the Note and return it to the borrower once the loan is paid in full.

If the original note is lost, the lender MAY need to pay for a lost instrument bond if there are any concerns that the note was transferred. In most cases, there are no such concerns and the lender provides the borrower an indemnity that protects the borrower due to the lender's loss of the original note.

Many Deeds of Trust are based on standard forms from title companies or other third parties, but not all. Title insurance would protect the lender against a prior lien that the borrower may have "forgot."

I agree (I'll update my post too). Maybe UCC's are plausible if the duration of the loan is short enough? I can't find any reference to promissory notes in Sacramento county's recorded document types though.

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celia
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Re: Notarize a Note? and Trustee on DOT

Post by celia » Fri Aug 26, 2016 10:41 pm

Is there a reason you just didn't file a lien against your friend's property like a mortgage company would do until the loan is paid off? In effect, you now hold a mortgage. There are tax consequences to that. Will you be reporting the interest you receive on your taxes?

regfman wrote:I do realize that when I don't use a title company I am forgoing the insurance that comes with that, but in this situation I am willing to take the chance about that.

The title insurance doesn't just give you assurance that a claim will be paid should a past lien holder (say, an heir) to the property surface, but likely also protects the owner from a future claim after the property is sold to a new person.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

SuzBanyan
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Re: Notarize a Note? and Trustee on DOT

Post by SuzBanyan » Sat Aug 27, 2016 9:23 am

celia wrote:Is there a reason you just didn't file a lien against your friend's property like a mortgage company would do until the loan is paid off? In effect, you now hold a mortgage. There are tax consequences to that. Will you be reporting the interest you receive on your taxes?

regfman wrote:I do realize that when I don't use a title company I am forgoing the insurance that comes with that, but in this situation I am willing to take the chance about that.

The title insurance doesn't just give you assurance that a claim will be paid should a past lien holder (say, an heir) to the property surface, but likely also protects the owner from a future claim after the property is sold to a new person.

A Deed of Trust is a lien against the real property. I'm not aware of any direct tax consequences resulting from the lien. Interest paid on a note is usually taxable income whether or not the note is secured by a lien against real or personal property.

While title insurance can be very helpful for undisclosed problems from before the Deed of Trust was recorded, it won't help at all with a later sale or encumbrance. If the Borrower pays in full, the lender won't care (or even know). If the Borrower doesn't pay and the lender forecloses on the property to satisfy the debt, transfers and encumbrances after the recording of the Deed of Trust generally are wiped out.

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