What Is a Promissory Note?

Living Trust

A trust is an arrangement in which one or more people manage or take care of property for someone else's benefit. A living trust is a trust that is created during your lifetime. In other words, while you are still alive, you transfer title to your property from your name to that of the trustee of the living trust. You can use the trust to gather your property under one document, so that the property is distributed efficiently after your death.

Public Notary

A Notary Public is an official of integrity appointed by state government —typically by the secretary of state — to serve the public as an impartial witness in performing a variety of official fraud-deterrent acts related to the signing of important documents. These official acts are called notarizations, or notarial acts. Notaries are publicly commissioned as “ministerial” officials, meaning that they are expected to follow written rules without the exercise of significant personal discretion, as would otherwise be the case with a "judicial" official.

Loan

Written or oral agreement for a temporary transfer of a property (usually cash) from its owner (the lender) to a borrower who promises to return it according to the terms of the agreement, usually with interest for its use. If the loan is repayable on the demand of the lender, it is called a demand loan. If repayable in equal monthly payments, it is an installment loan. If repayable in lump sum on the loan's maturity (expiration) date, it is a time loan. Banks further classify their loans into other categories such as consumer, commercial, and industrial loans, construction and mortgage loans, and secured and unsecured loans. Read more: http://www.businessdictionary.com/definition/loan.html

The Promissory Note

The format of promissory notes differs per lender, however the idea is the same. The opening paragraph identifies the lender and borrower. The note will describe the terms of the deal including principal amount, interest rate and maturity date. Following the terms, the document will list several recitals. A recital is a statement of the facts contained within the transaction. With a secure note, one of the recitals will describe the security instrument. A security instrument can be a number of documents including a mortgage, assignment, security agreement, or a pledge agreement. It will read similar to, “Whereas the borrower has entered into a Security Agreement dated July 31, 2019 as collateral for the loan.”. This clause ties the promissory note and security agreement together, in effect collateralizing the loan.

Non-Payment

If a borrower begins to miss payments on a secured note, they will incur late charges. If the borrower exceeds 90 days of non-payment, the loan will be declared in default. If this happens, the lender will begin can pursue legal action. The process can depend on a number of factors including the type of loan, the collateral and the state judicial process. When completed, ownership of the collateral will be transfered to the bank. The lender will likely have legal expenses, and will usually work with a borrower in default before exercising its rights to the collateral. It may lower the interest rate, extend the repayment term or institute a temporary period where the borrower pays only the interest.

Flexibility

A key benefit that a promissory note provides both parties, is flexibility. Promissory notes allow you to specify how payments will be made whether in installments, at a future point in time or due upon signing. You can fully amortize the loan and make the payments on monthly schedule, or you can make equal payments due on a quarterly or semi-annual basis. This flexibility allows you to specify loan terms that best fits your needs or the needs of your company.

Durable Power of Attorney