2nd Trust Deed Glossary for California Real Estate Investors

2nd Trust Deed Loan Terms

Combined Loan-to-Value (CLTV)

• (1st mortgage amount + 2nd mortgage amount) / property value
• Normally restricted to 60% to 65%, but could be higher depending on lender

Terms

Refers to the duration of the loan, usually 6 to 24 months

Subordination Agreement 

Establishes priority of liens, with the 1st trust deed in a senior position over the 2nd trust deed in a junior position

Pre-payment Penalties

Vary lender to lender, but usually 3 to 6 months

Cross Collateralizing Properties

Using multiple properties as security for one loan is often seen when a borrower lacks sufficient equity in a single property

Credit Requirements

Some hard money lenders may require a minimum credit score, but this can be overlooked if equity is strong

Default Interest Rate 

A higher rate kicks in if the borrower misses payments or does not adhere to the loan terms

Balloon Payment

A lump-sum payment is due at the end of the loan term, since the majority of hard money payments are interest-only

Personal Guarantee 

A personal guarantee from the borrower, allowing for personal assets to be used for repayment if the property collateral is insufficient