For Trust Deed Investors

How a California Trust Deed Works

By HanoverMC · Published September 28, 2026 · 8-minute read

Investments in trust deeds secured by one or more interests in real property are subject to risk of loss.

A trust deed works differently from stocks and bonds: your money is lent against a specific piece of California real estate, and your claim on that property is recorded in the county records in your name (or your custodian's, for your benefit). For many investors, that makes trust deeds a way to diversify beyond stocks and bonds into income tied to real estate.

Trust deed investing has been part of California's private lending market for decades. If you've read our overview, Trust Deed Investing in California, this guide goes one level deeper into the mechanics: what you actually own, who is involved, how the money moves, and the vocabulary you'll see in every deal. It's written by Hanover Mortgage Company (HanoverMC), a California private money mortgage company that arranges trust deed loans for private investors.

What you own: the note and deed of trust

Every trust deed investment is built on two documents that work together:

The note is the debt; the deed of trust is the collateral. Together they are what investors mean when they say they "own a trust deed."

The three parties in a trust deed

A mortgage in many states involves two parties. A California deed of trust involves three:

• Trustor — the borrower who owns the property and signs the deed of trust.
• Beneficiary — the lender. As a trust deed investor, this is you (or your self-directed IRA custodian, for your benefit).
• Trustee — a neutral third party, often a title or trustee company, that holds the power of sale if the loan defaults and records the release (reconveyance) when the loan is paid.

That third party is what allows California's non-judicial foreclosure process under Civil Code Section 2924, which generally resolves a default without going through the courts.

How the money moves

1. 1 · A borrower needs capitalA real estate owner or investor needs a business purpose loan a bank won't make or can't close in time.
2. 2 · The broker underwrites the loanA private money mortgage company such as HanoverMC reviews the property, value, lien position, and the borrower's plan to repay.
3. 3 · You review the opportunityYou receive written disclosures on the loan and decide whether to fund it.
4. 4 · The title company funds and recordsYour money goes to a major title company, the loan closes, and the deed of trust records with you as beneficiary.
5. 5 · You receive paymentsThe borrower pays interest (and sometimes principal) during the term, usually through a servicer.
6. 6 · The loan pays offThe borrower refinances or sells, you receive your principal, and the lien is released.

If a borrower stops paying, California's non-judicial foreclosure process applies — see Foreclosure of a Trust Deed Investment.

Why investors choose trust deeds

• Real property security. Your loan is tied to a specific, recorded piece of real estate you can look up and evaluate.
• Scheduled payments. Borrowers agree to make interest payments on a set schedule for a defined term. Payments depend on the borrower performing and are not guaranteed.
• Deal-by-deal choice. You decide which property, lien position, term, and amount fit your goals.
• Portfolio diversification. Trust deeds add real estate–secured lending to a portfolio, and you can spread capital across several loans, property types, lien positions and California regions instead of concentrating it in one.
• Retirement-account eligible. Trust deeds can be held in self-directed IRAs and similar accounts through a qualified custodian.

Diversification can help spread risk, but it does not eliminate it — no investment is risk-free. Borrowers can default, property values can fall, and your money is committed until the loan pays off. We walk through those risks and the questions to ask first in Who Can Invest.

Trust deeds vs. mortgage funds

Many California firms offer trust deed exposure in two very different ways. Neither is right for everyone:

As a private money mortgage company, HanoverMC arranges individual trust deeds — whole and fractional — for investors who prefer to choose their loans one at a time. Fractional trust deeds let you split capital across more loans, so you can build diversification one property at a time while still seeing each deal.

Key trust deed terms

How California regulates trust deeds

• The deed of trust system. A trustee with power of sale allows a defined, non-judicial path if a borrower defaults.
• Licensed brokers. Firms that arrange trust deed investments for others must hold a DRE license, which you can verify at dre.ca.gov.
• Required investor disclosures. Before you fund, a broker must give you a written Lender/Purchaser Disclosure Statement (DRE form RE 851A) and evaluate suitability under B&P Code §10232.45.
• A varied market. Residential, commercial, mixed-use and land loans across the state mean investors can look at many different property types and diversify by location and asset class.

The DRE also publishes a free investor guide, Trust Deed Investments — What You Should Know!! (RE 35), on its publications page.

Where HanoverMC fits in

HanoverMC (Hanover Mortgage Company) is a California private money mortgage company. We arrange business purpose 1st, 2nd, and 3rd trust deed loans; we do not fund them. The capital comes from private investors — individuals, trusts, and self-directed retirement accounts — who become the beneficiary on each loan.

Every loan goes through underwriting and closes on custom California loan documents prepared for that transaction. HanoverMC generally considers financing up to 70% LTV on 1–4 unit properties and up to 65% LTV on commercial and land are case by case deals. When there is more than one loan on the property, such as a 2nd or 3rd trust deed, the maximum is generally 65% CLTV. All loans are evaluated case by case.