Private Lending in a Self-Directed IRA: How California Trust Deeds and Foreclosure Actually Work
Your IRA can act as the bank — funding short-term real estate loans secured by a recorded deed of trust and earning interest tax-deferred (or tax-free in a Roth). The mechanics of securing and recovering those loans are state-specific, and California's non-judicial foreclosure process is one of the faster, lender-friendlier systems in the country. This article covers the California-specific side. For private-lending fundamentals, see our [Private Lending With a Self-Directed IRA guide].
Why Interest Income Is Clean for IRAs. Passive interest is excluded from UBIT under IRC § 512(b)(1). For a typical IRA lender making a handful of loans a year, there's no UBIT — one reason note investing is often cleaner than owning leveraged rental property inside an IRA.
Typical 2026 California Loan Terms
| Term (Recommendations) | Range |
|---|---|
| Interest rate | 8%–12% |
| Points | 1–3 at origination |
| LTV (hard cap) | 65%–70% |
| Term | 6–24 months |
| Position | First lien (deed of trust) |
| Borrower guarantee | Yes (from the borrower — never from you) |
David's story: David's IRA LLC funds a $250,000 first-lien on a Riverside fix-and-flip at 11% + 2 points, 12-month term, 65% LTV. The IRA earns ~$27,500 interest + $5,000 points — roughly a 13% yield on funded capital, tax-deferred. All payments flow back into the LLC account.
How California Secures the Loan. The borrower signs a promissory note and a deed of trust recorded against the property, naming the IRA-owned LLC, or IRA-owned Trust (or Solo 401(k)) as beneficiary. Require title insurance naming the LLC as insured and hazard insurance with the LLC as loss payee. Use a third-party for closing.
California Non-Judicial Foreclosure (the CA-specific part). If the borrower defaults, California's deed-of-trust structure allows non-judicial foreclosure — no lawsuit required:
- Trustee records a Notice of Default (NOD); a 3-month reinstatement period begins.
- After the NOD period, the trustee records a Notice of Sale and waits a minimum of 21 days.
- The property is sold at a trustee's sale. The IRA's LLC can credit-bid up to the loan balance and take title.
- Total timeline: roughly 4–7 months — far faster than judicial-foreclosure states.
If the LLC takes title, the IRA now owns real estate and operates it under all the standard IRA real estate rules (no personal use, no sweat equity). You cannot personally buy the property from your IRA.
Disqualified Persons (Lending). The IRA cannot lend to you, your spouse, lineal ascendants/descendants, or entities they own 50%+. You cannot personally guarantee the IRA's loan (Peek v. Commissioner). Siblings, cousins, and friends are permitted borrowers.
Prohibited vs. Permitted (CA lending): lend to an unrelated flipper = permitted; lend to your son's LLC = prohibited; lend to your sister = permitted; you guarantee the borrower's note = prohibited; borrower guarantees it = permitted; IRA forecloses and takes title = permitted; you buy it from the IRA afterward = prohibited.
FAQ
-Does my IRA owe tax on loan interest? Generally no — interest is excluded from UBIT under § 512(b)(1).
-Can my IRA lend to my own LLC? No — it's a disqualified-person entity if you own 50%+.
-Who handles a California foreclosure? The trustee named in the deed of trust, on the IRA-owned LLC's behalf.
-Can my IRA lend to my sister? Yes — siblings are not disqualified persons.
-What return is realistic? 8%–13% all-in (interest + points) in 2026.
Considering trust-deed lending in California inside your IRA? Schedule a 15-minute call HERE or call (760) 303-5909.Set up your Checkbook IRA LLC →
MyDirect IRA does not provide tax, legal, or investment advice. Consult your own professionals.
