BOOK of LISTS

A promissory note is debt you owe to a lender, such as individuals, family, or outsiders, or debt owed to you. Our expert, a real-estate attorney, specializes in drawing up these kinds of agreements for clients who buy and sell property. In this list, he gives us some of the more important parts of a promissory note, with an emphasis on real-estate transactions.

You’ve reached your limit.
Register now for FREE to read more!

A promissory note is debt you owe to a lender, such as individuals, family, or outsiders, or debt owed to you. Our expert, a real-estate attorney, specializes in drawing up these kinds of agreements for clients who buy and sell property. In this list, he gives us some of the more important parts of a promissory note, with an emphasis on real-estate transactions.

1. Verification

Be sure you verify that your name and address are correct.

2. Confirmation that the interest rate is what you were promised by your lender

While you should also analyze the Truth in Lending statement, which must be given to you at settlement, the annual percentage rate (APR) contained in that statement is not the same as your mortgage interest rate, which must be spelled out in the note. The APR represents the true yield to the lender, computed on all of the fees and costs you will have to pay at settlement.

3. First payment due date

Typically, interest is paid in arrears, so when you make your March payment, for example, it is paying the interest that accrued during the month of February.

4. Correct amount of your monthly payment

Make sure that this is correct. However, some lenders will escrow moneys for real-estate taxes and insurance, and thus your actual monthly payment will be higher than spelled out in the note. Make sure you know exactly what your real payment will be, before you leave the settlement table.

5. Prepayment penalty

This is a very important issue, and you should know your rights before you complete the settlement. In fact, this is an issue that you should discuss with your lender well in advance of settlement. If there is a prepayment penalty associated with your loan, you may want to shop around for another lender.

6. Grace period

Most commercial lenders will allow you to make your payment up to the 15^th of each month before calling you in default. However, interest will accrue on your loan until the payment is received—and recorded—on your lender’s books, and thus you should try to make your payments as early in the month as possible.

7. Assumable loan

Can someone buy your property and take over your loan? Most loans contain what is known as a “due on sale” clause. In the promissory note, the section will be called “transfer of property or a beneficial interest in Borrower.”

Source: Benny Kass is the senior partner with the Washington, D.C., law firm of Kass, Mitek & Kass, PLLC (www.kmklawyers.com).. Contact him at blkass@kmklawyers.com.