CA Real Estate Transaction Basics: What is a Promissory Note?
The real estate industry is one of those industries that is obsessed with lingo, acronyms, and abbreviations. Keeping up with all of the latest real estate terms thrown around by brokers (commercial brokers especially) is not easy. However, there are certain legal real estate terms that are part of the long-standing industry vocabulary. My goal is to touch on a handful of these terms in a general fashion.
Promissory Note:
A promissory note is a contract where one party makes an unconditional promise in writing to pay a sum of money to another, either at a fixed or determinable future time or on demand of the payee, under specific terms. The terms of a promissory note, sometimes referred to simply as a “note”, typically include the principal amount, the interest rate, the parties, the date, the terms of repayment, and the maturity date. Many times, there are specific provisions addressing the payee’s rights in the event of a default (i.e. acceleration clause, foreclosure).
One important thing to consider is that there are limits as to how high the interest rate can be according to the state you are in. If the interest rate exceeds the limit, the payee may face severe legal consequences.
In the context of real estate financing, a promissory note is secured by a mortgage or deed of trust that is recorded against the property. The promise to pay is now “secured” by the real estate, which serves as security collateral. When filed and recorded with the applicable county recorder’s office, it establishes legal notice to all that the note is secured by the property.
If you have legal questions regarding a real estate transaction, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
For further reading on this topic, be sure to check out the article on extending promissory notes’ maturity dates.
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