Secured Notes | Investment Choices

Secured Notes

A secured note is a promissory note that is guaranteed by an interest in an asset that is worth as much or more than the amount of the note. If the borrower defaults on the loan, the IRA may become the owner of the asset securing the note.

Notes can be secured by real property, undeveloped land, vehicles, mobile homes, accounts receivable, etc. As with an unsecured note, the note spells out the details of the loan, such as interest rate, loan amount, and terms. A deed of trust, a mortgage, or a Uniform Commercial Code (UCC1) filing with the Secretary of State may be used to place a lien against the secured asset. For most vehicles, the IRA would be placed on title as the lienholder, just like any other lender.

Note & Deed of Trust

A deed of trust involves three parties: the trustor (borrower), the beneficiary (lender: the IRA), and the trustee (may be a title company or an unrelated third party, but the trustee cannot be a disqualified person). When the loan is repaid the title is reconveyed back to the trustor. A note and deed of trust is the preferred financing instrument in California because of the ease of foreclosure. When a loan is in default, the beneficiary can order the trustee to hold a trustee’s sale where the property can be sold. The process takes about 4 months.

Note & Mortgage

A mortgage involves just two parties: the mortgagor (borrower) and the mortgagee (lender). The mortgage places a lien on the property, but legal title remains in the name of the borrower. If the borrower defaults, court proceedings are required, which may take up to two years: one year to foreclose and another year in which the borrower has the right to redeem the property.

Note & UCC1 filing

The Uniform Commercial Code (UCC) provides for the filing of certain financial statements, agricultural liens, and other lien documents with the Secretary of State. Filing with the Secretary of State’s Office serves to perfect a security interest in the named collateral and establishes priority in case of default or bankruptcy. A UCC filing can be used when a lien is attached to certain real property, such as mobile homes, a business’ inventory, etc.

Loan Requirements