Understanding Deeds of Trust

When you lend money against real estate, your protection is not the borrower's character, the operator's track record, or anyone's promise. It is a recorded instrument — a document filed in the county's public records that pledges a specific property as collateral for your specific debt. Depending on the state, that instrument is a deed of trust or a mortgage. They differ in mechanics, but they do the same job: they turn your loan from an IOU into a claim on real property that the entire legal system is built to enforce.

Deed of trust vs. mortgage: the two-party and three-party versions

A mortgage is a two-party instrument: borrower and lender. A deed of trust adds a third party — a neutral trustee who holds bare legal title as security and has the power to sell the property if the borrower defaults, typically without a court proceeding. Roughly half the states use each system. Michigan is a mortgage state, but with an unusual feature that accomplishes much the same thing: foreclosure by advertisement, a non-judicial process that lets a lender with a properly drafted mortgage foreclose through published notice and a sheriff's sale rather than a lawsuit. In practice, private lending documents in Michigan are mortgages with power-of-sale language; people often say 'deed of trust' generically, the way people say 'Kleenex.' What matters is the function: a recorded lien with an enforcement path.

What recording actually does

Every county in America maintains a public land records office — in Michigan, the Register of Deeds. When your lien is recorded there, three things happen. First, constructive notice: the entire world is legally presumed to know about your claim, whether or not they actually looked. Second, priority: your place in line is stamped by the recording date. Third, permanence: the lien follows the property, not the people — it survives the borrower selling, the operator dissolving, or your own paperwork burning in a fire, because the authoritative copy is the county's.

• —Public: anyone — including you, today — can verify a recorded lien by searching the county records by name or property.
• —Automatic: title companies search these records on every sale and refinance; your lien surfaces without you lifting a finger, and must be paid for the title to clear.
• —Durable: the lien is indifferent to what happens to the parties. It attaches to the land until released.
• —Ranked: recording order sets payment order. First recorded, first paid — with narrow exceptions like property tax liens, which outrank everyone.

Priority: why 'first position' is the phrase that matters

Lien priority is brutally simple: when a property is sold or foreclosed, sale proceeds pay the first-position lien in full before the second position sees a dollar, and so on down. A first-position lien on a debt-free property means no bank, no other lender, and no earlier claim stands ahead of you. Always confirm position before funding — ask directly, and verify against the title search. A second-position note is not necessarily a bad investment, but it is a different investment, and it should be priced differently.

Protective equity: the number that does the protecting

A lien's power is proportional to the equity beneath it. Lenders express this as loan-to-value: a $42,000 note against a house that retails on contract near $99,000 is roughly 42% LTV, meaning the property's value could fall by more than half before your principal is genuinely threatened. Compare that to the 80–95% LTV of conventional mortgage lending. This is the quiet advantage of lending in deeply discounted markets: the collateral coverage that institutional lenders would consider a fantasy is the ordinary starting point.

Your protection isn't anyone's word. It's a lien on record at the county, a note you can enforce, insurance with your name on it, and equity beneath you measured in multiples.

The instruments around the lien

The recorded lien never travels alone. It secures a promissory note — the contract that states the amount, the rate, the payment schedule, and the remedies; the note is the debt, the lien is the collateral. Alongside them: a lender's insurance interest (you're named on the property's hazard policy via a mortgagee clause, so a fire pays you before it pays anyone else), and the closing statements documenting what was actually paid for the property. If the note is ever sold or the lender's entity changes, an assignment of the lien is recorded too, keeping the county's chain current. Together this is the document package — and a serious operator hands you all of it before a dollar moves.

How to verify a lien yourself, in one afternoon

• —Ask the operator for the property's county and recording details — for our deals, Genesee County (Flint) or Saginaw County (Saginaw).
• —Search the county Register of Deeds online portal (both counties offer one) by address or party name.
• —Confirm the lien exists, names you or your entity, and shows the expected amount and date.
• —Check what else is recorded against the property — this is how you verify 'first position' independently.
• —For larger commitments, order a title search or lender's title policy; it costs a few hundred dollars and replaces trust with certainty.

The deed of trust is the least glamorous document in real estate and the most important one in your file. Everything else in a lending relationship can be warm and verbal; this one is cold, public, and permanent — which is exactly what you want standing between your principal and the unexpected.