Full question:
My friend is lending me money to buy a house (20% of the value) . But he wants to secure the loan with a mortgage on the house with him being the first mortgage/lien holder on the house. I'm putting rest of the money. Can you let us know what forms are need to do this. The house title will be on my sons Irrevocable trust. Can you also let us know what documents are for this purpose.
- Category: Debts and Credit
- Subcategory: Promissory Notes
- Date:
- State: California
Answer:
A promissory note can be secured or unsecured. When secured, it means that the lender can take the property (collateral) if the borrower fails to repay the loan. If the borrower files for bankruptcy, the lender may recover the loan value by taking possession of the collateral instead of receiving only a portion of the borrower's assets after they are divided among creditors. Collateral can include various types of property, such as personal property, stocks, or accounts receivable.
The loan agreement must be signed by both parties and witnessed by a notary. It may include a choice of law clause, which specifies which jurisdiction'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 outlines the repayment terms, which can include installment payments or a lump sum. It may also specify smaller payments at the beginning and a larger balloon payment at the end of the loan period. Additionally, it can include a confessed judgment agreement, which requires the borrower to waive defenses and allows for a judgment to be entered against them without notice if they fail to pay.
Key types of notes include:
- Promissory Note: A written promise to pay a specific sum of money to a designated person or bearer.
- Cognovit Note: A note where the borrower acknowledges the debt and allows for judgment against them without notice; this type is not valid in many states.
- Collateral Note: A note secured by collateral.
- Demand Note: A note payable on demand.
- Floating Note: A note with a variable interest rate.
- Recourse Note: A note that allows for loss of collateral and personal judgment in case of default.
- Renewal Note: A note that extends the due date of a previous note.
- Unsecured Note: A note that is not backed by collateral, relying solely on the borrower's promise to pay.
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.