The note states how the noteholder will calculate the new interest rate prior

The note states how the noteholder will calculate the

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The note states how the noteholder will calculate the new interest rate prior to each new change date. It also states how the noteholder will use the new interest rate to calculate the change to the monthly payment that is necessary to repay the unpaid portion of the principal by the maturity date. This segment of the note states any limits on the interest rate changes and the effective date of the changes. The note also states that the noteholder will deliver or mail notice to the borrower of the change in interest rate prior to the effective date of the change. This notice must include all information required by law, including the name and telephone number of the individual who can answer the borrower’s questions regarding the notice. Negotiability of a Promissory Note A note is considered personal property and is a negotiable instrument. A negotiable instrument is a written unconditional promise or order to pay a certain sum of money on demand or at a definite future date, payable either to order or to bearer and signed by the maker. Negotiable instruments are freely transferable and may be transferred by endorsement ____________________________________________________________ Unit 5: Financing Real Estate 202
or delivery. Freely transferable means a bank or other creditor may sell the negotiable instrument (promissory note) for cash. The most common type of negotiable instrument is an ordinary bank check. A check is an order to the bank to pay money to the person named. A note is the same thing. It can be transferred by endorsement (signature) just like a check. If correctly prepared, it is considered the same as cash. However, in order to be considered a negotiable instrument, the document must be consistent with the statutory definition. Required Elements to Create a Negotiable Promissory Note Unconditional promise or order to pay a certain amount of money Payable on demand or at a definite time Payable to order or bearer Signed by the maker (borrower) The Uniform Commercial Code ( UCC ) governs negotiable instruments and is designed to give uniformity to commercial transactions across all 50 states. As we have seen, notes are negotiable instruments that are easily transferable from one person to another. However, the new buyer of a note (holder in due course) must be reasonably confident that the loan will be paid as agreed by the maker. The UCC defines a holder in due course as one who takes an instrument for value in good faith absent any notice that it is overdue, has been dishonored, or is subject to any defense against it or claim to it by any other person. The holder in due course is a subsequent owner of a negotiable instrument such as a note. The holder in due course must have accepted possession of the financial instrument in good faith and given something of value for it. The holder in due course is presumed to be unaware that the financial instrument previously may have been overdue, been dishonored when presented for payment, or had a claim against it, if in fact such were the case. Because the holder in due course is a bona fide purchaser , he or she is entitled to payment by the maker of the note.

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