“I was putting together brochures for investment properties, but by the time I would make phone calls or put the brochure up on the Internet, [the properties] would be sold,” MacDougall says. “Then I would get five-to-10 additional calls and it’s already gone. CrowdTrustDeed offers real-time access to buying and investing on a trust deed and an automated way to review all the related material. It provides a social element as well. If you like a trust deed, you can let your friends know.”

Since being founded, CrowdTrustDeed.com has placed over $40 million in loans from its investors, secured by more than $60 million in real estate. Borrowers and projects are screened before being made available to potential investors, who go through a registration process that ensures the projects’ suitability for them before they participate.

Hard money loans are typically structured with a lower loan-to-value ratio than conventional financing, which lowers the risk of loss in the case of default. Some companies like Ignite incorporate equity into the loan size, while others, like CrowdTrustDeed, are debt-only platforms.

Because trust deeds are private, collateralized loans, they aren’t subject to the many regulations constraining conventional loans, so the funds are available quickly to developers and house flippers demanding cash to buy and improve discounted properties.

“I think we play an important role because we finance people buying homes and assets that need value added,” MacDougall says. “It provides stimulus across construction and creates incentive for people to move. The benefits of home-buying and upgrading help local and state economies.”

Borrowers, usually construction companies, developers and land bankers, use the money for property acquisition, improvement and both commercial and residential development, says Clint Sanderson, chief operating officer of American Fork, Utah-based Nudge Real Estate.

“Real estate is all about capital and access to capital; the whole recession, the housing crisis occurred because of subprime mortgage lending,” Sanderson says. “That created a ripple effect and essentially banks stopped lending and it stopped everything. Without capital, there’s no development and no growth.”

Since it began operations in 2010, Nudge has sold more than 1,800 trust deed notes and funded more than $120 million in loans, selling to investors in the U.S., Canada, New Zealand, Singapore and Japan. Ignite, Nudge and CrowdTrustDeed have made a niche dampening the potential risks by bringing all of the necessary services to research the projects, write the loans and sell the investments under one roof.

But there are skeptics. Jeremy Hyndman, the founder of Investor Defense Law, a Los Angeles firm that helps investors bring claims against advisors and issuers, says that trust deed investments are illiquid, which makes them less appropriate for investors who need cash on hand.

“If you are in a bond fund, you can get in and out when you want as quickly as you want,” Hyndman says. “If you’re dealing with trust deeds, the market is small. Who else wants the first priority trust deed in this particular house in this particular town?”

But such illiquidity is one reason lenders keep the terms short, usually under five years. At Ignite Funding, the loans are often shorter, Robbins says.

“The terms are typically six to 12 months, like a six-month loan with an optional six-month extension,” Robbins says. “We write them that way because we usually split origination points between the time periods. Two points up front for the first six months, then two additional points for the second six months. If they complete the project in six months, they forgo the additional points. By limiting the terms, we’re adding a little liquidity to an otherwise illiquid investment.”

Occasionally borrowers’ projects don’t come to fruition. While investors ideally recover their money after foreclosing on and selling the property, there’s no guarantee that will be an easy or inexpensive process, nor is there any assurance the property will break even or profit at sale.