What is a Second Deed of Trust?

A second deed of trust is a financial instrument or loan that allows real estate owners to use their real estate as collateral for the loan. The deed of trust, sometimes called a mortgage, is a voluntary lien that is placed on a borrower’s home, land or investment property. Deeds of trusts and mortgages always have a Promissory Note attached to the official documents.

A second deed of trust means that there is already a loan or lien on the property, called a first deed of trust. The second deed of trust is in junior position to the first loan and has many special considerations for borrowers as well as lenders. Second Trust deeds are also frequently called junior loans or subordinate loans.

Secondary loans are typically provided by only a small number of banks and private landers. Most lenders believe that due to subordinate lien priority they have more risk and as a result there are fewer offerings to real estate borrowers.

Private Second Trust Deed Loans

  • Funding periods are short.Between 10-21 days
  • Combined Loan to Values are Lower
  • Require more protective equity
  • Loan terms for private seconds are 12-60 months
  • Documentation is limited and lite
  • Interest rates are higher than first trust deeds
  • Qualifying can be easier
  • Not all second loans require appraisals
  • All second loans require escrow and title
  • Loan approvals typically are provided in 24 hours
  • Very little credit standards required
  • Rarely do owner occupied properties

Bank Second Trust Deed Loans

  • Some 1st lien holders don't allow junior loans
  • Banks are the same.
  • Banks may lend more
  • Bank loan terms are longer
  • Banks want FULL documentation
  • Bank rates are lower
  • Qualifying is more difficult
  • Banks always require full appraisals
  • Banks are the same
  • Loan approvals take 2 weeks +
  • Excellent credit required
  • Frequently do owner occupied properties

Types of Second Trust Deeds and Uses

The most popular type of junior loans is a fixed loan between $250,000 - $1,000,000. Monthly payments are either interest only or are principal and interest and are amortized. Interest only loans have balloon payments.

Another second trust deed type is called an Equity Line of Credit that allows borrowers to “draw down” on the loan whenever they choose, rather than getting a lump sum at the close of escrow. Only banks provide Equity Lines of Credit and often are adjustable rate instruments.

The third most popular junior loan is a purchase money second, where a borrower is acquiring a property using two loans. The purchase money second trust deed is uncommon and not frequently used.

Uses for Money from Second Trust Deeds

Proceeds from a second trust deed transaction can be used for almost any purpose. The most popular reasons include:

  • Any and all business purposes that can be tax deductible
  • Short Periods of time for specific uses that are time sensitive
  • Business partner buy-outs
  • Construction and rehab projects