Promissory Notes Tutorial
Some simple term definitions will help you approach the use of promissory notes with confidence, and at least the illusion of expertise. First, the maker or payer of the note is the borrower who executes the note. The payee is the lender. Both payer and payee must sign the note before it can be legally executed.
The promissory note will set forth the loan amount and terms, interest rate, method and timing of repayment as well as the payer’s promise to repay. With a deed of trust, the note may state that it is payable to the bearer. If used with a mortgage, the note may state that it is payable to the mortgagee. The mortgagee is the person who holds the mortgaged property as collateral for the loan. Other items stated in both those documents may be restated in the promissory note including charges or conditions for late payment and default, as well as notifications and cures for default. Specifics on the right to prepay the loan balance and also any other charges the payee may receive should be spelled out as well on the promissory note.
As in other negotiable instruments, the promissory note may be assigned to a third party who then has the right to the borrower’s periodic payments. In other words, a note may be sold to another party.