Promissory Note

A promissory note is the written promise to repay a loan, spelling out the amount owed, interest rate, payment schedule, maturity date, and default terms.

A promissory note is the written promise to repay a loan: who owes whom, the amount, the interest rate, the payment schedule, the maturity date, and what happens on default. In real estate the note is almost always paired with a security instrument — a mortgage or deed of trust — recorded against the property. The note is the debt itself; the mortgage or deed of trust is what gives the lender a claim on the property if the note is not paid.

In seller financing, the seller becomes the note holder. A hypothetical structure: the buyer signs a $100,000 note at 7%, amortized over 30 years with a five-year balloon, secured by a recorded deed of trust on the house. The seller collects payments like a bank would. Notes are also assets in their own right — a seller who wants cash now can sell the note to a note investor, usually at a discount to its remaining balance.

What beginners get wrong is assuming the note alone protects the lender. An unsecured note is just a signed promise; if the borrower defaults, there is no claim against the property — only a lawsuit against the person. The other mistake is do-it-yourself documents missing the terms that matter later: late fees, default and cure periods, due-on-sale language, and who services the payments. Use professionally drafted documents, record the security instrument, and run payments through a third-party servicer so every dollar is documented. This is not legal or tax advice.