Full question:
My husband and I will be loaning our sister in law some money to help her pay off her mortgage. We reside in California, she resides in Nevada. The loan will not have interest applied to it. The collateral will be the manufactured home she lives in. The total amount of the loan will be due upon her death or upon the sale of her home whichever occurs first. Will a promissory note handle this transaction and if so which one since there are two states involved? Another stipulation in the loan will be that if my husband and I both pass away before my sister in law, the loan will still be due and payable to our trust.Thank you for any assistance you can give me.
- Category: Debts and Credit
- Subcategory: Promissory Notes
- Date:
- State: California
Answer:
A promissory note can be either secured or unsecured. A secured promissory note means that collateral, such as the manufactured home, can be taken by the lender if the borrower defaults. In case of bankruptcy, the lender may recover the loan value by seizing the collateral instead of receiving only a portion of the borrower's remaining property.
The parties involved must sign the note, and a notary should witness the signatures. It’s advisable to include a choice of law clause, which specifies which state's laws will apply in case of a dispute. The loan document should be recorded in the county recorder's office where the property is located.
A promissory note can outline payment terms, including lump-sum or installment payments. You may also consider a confessed judgment agreement, which allows for a judgment against the borrower without notice if they fail to pay. However, this type of note may not be valid in all states.
Types of promissory notes include:
- Secured Note: Backed by collateral.
- Cognovit Note: Allows judgment without notice; not valid in many states.
- Demand Note: Payable on demand.
- Unsecured Note: Based only on the borrower's promise to pay.
Given the specifics of your situation, it may be beneficial to consult a legal professional to ensure compliance with both California and Nevada laws.
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.