Full question:
I am going to lend a friend $16,500.00 to save her house from foreclosure..I need some kind of a promissory note, IOU or whatever you feel is the right document to guarantee the return of my money.
- Category: Debts and Credit
- Subcategory: Promissory Notes
- Date:
- State: New York
Answer:
A promissory note is a formal agreement where one party promises to pay back a loan. This document is essential for both personal loans and business loans to prevent misunderstandings. In your case, since the loan is for a mortgage and likely unsecured, it would be classified as an unsecured note.
Key elements of a promissory note include:
- The loan amount
- The repayment date
- The interest rate
- Any collateral, if applicable
It’s also important to include default terms, which outline what happens if a payment is missed. Both parties should carefully read the note before signing. If there are any uncertainties, consulting a certified public accountant (CPA) or lawyer is advisable.
Be aware that the IRS has guidelines regarding interest rates on personal loans. If the interest rate is too low or if the loan is interest-free, it may be considered a gift, which could incur gift tax.
Lastly, even a well-drafted promissory note cannot guarantee repayment. If your friend defaults, you may need to pursue legal action to recover your funds.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.