What is a promissory note in real estate?

What is a Promissory Note?

In real estate, a promissory note is a binding legal document where a borrower agrees to repay a specified loan amount to a lender. It outlines key details like the loan amount, interest rate, repayment terms, and the maturity date, often using the property as collateral. The note also specifies the consequences of default, making it an important part of real estate financing and private lending agreements.

A promissory note should include:

  1. Amount Borrowed: It clearly states the principal amount of money being borrowed.
  2. Repayment Terms: This includes the repayment schedule, whether in lump sum or installments, and the due date or dates.
  3. Interest Rate: The note specifies the interest rate charged on the borrowed amount.
  4. Collateral: In real estate, the promissory note is often secured by the property itself, meaning the property can be used as collateral in case of default.
  5. Signatures: Both the borrower and lender must sign the document, making it legally binding.
  6. Maturity Date: This is the date by which the loan must be fully repaid.
  7. Default Terms: Conditions and consequences of non-payment or default are outlined.

A promissory note legally binds the borrower to repay the loan, often with the real estate as collateral.

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