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Unformatted text preview: y, borrowers hypothecate their real property as security for payment of the promissory note. PROMISSORY NOTE
When money is borrowed to purchase real estate, the borrower agrees to repay the loan by signing a promissory note, which outlines the terms of repayment and sets the due date. The promissory note is legal evidence that a debt is owed. The two most common types of promissory notes in general use are the straight note and the installment note. Dynasty School (www.dynastySchool.com) 8-1 REAL ESTATE FINANCE The straight note is an interest–only note.
Under a straight note, the borrower agrees to pay the interest periodically (or all at one time, when the note matures) and to pay the entire principal in a lump sum on the due date. The second type of real estate promissory note, and by far the most common, is the installment note. An installment note requires periodic payments that include both principal and interest. This reduction in principal is referred to as amortization. Amortization notes will be discussed in details in later chapter. CHARACTERISTICS OF PROMISSORY NOTE
Whether a debt is secured by real property, personal property, or has no security at all, the promissory note is the legal, enforceable promise to pay back the money borrowed. It is the “evidence of the debt.” Promissory notes are called “two party paper.” The maker of a note promises to pay the holder of the note a specified sum of money according to the terms stated on the note. Payor – The maker of the note; the one who pays; the borrower. Payee – The holder of the note; the receiver of the money payable under the note; the lender. NEGOTIABLE NOTES
These are notes freely transferable in commerce. When properly prepared, they are typically accepted as the equivalent of cash. To be considered a negotiable note, the instrument must conform to statutory requirements. It must be: An unconditional promise to pay In writing 8-2 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate,...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10