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USEFUL INFORMATION AND DEFINITIONS TO ASSIST YOU WITH PROMISSORY NOTE FORMS
Promissory Note: A promissory note is an unconditional promise to pay on demand or at a fixed or determined future time a specific sum of money.
Collateral Note (also known as “Secured Note”): These terms refer to a note that is secured by collateral. The term “collateral” refers the property that is subject to the note.
Demand Note: A demand note is a note payable on demand from the person who is owed the money.
Floating Note: A floating rate note (or adjustable rate note) is a note where interest is variable.
Recourse Note: A recourse note is a note where the default may result in loss of collateral and also personal suit and judgment. Most notes are recourse notes.
Renewal Note: A renewal note is a note that renews a previous note due date.
Secured Party: a secured party is the person or company that holds the security interest in the collateral. For example, an automobile dealer who sells someone a car on credit is the secured party, with the automobile being the collateral.
Termination Statement: Once the debt is paid in full, the secured party completes a termination statement which indicates that the secured party no longer claims a security interest in the collateral.
Unsecured Note: An unsecured note is a note that is not secured by any collateral but only the promise to pay.
Does a promissory note have to be recorded? Generally, a promissory note does not have to be recorded.
Who must sign a promissory note? All borrowers must sign. The lender is generally not required to sign but may sign.
When does default occur? The parties should define default in their agreement. Generally, a debtor defaults when he fails to make payments due or enters into bankruptcy proceedings. The parties can agree that other acts or omissions will constitute default, such as a failure by the debtor to maintain insurance on the property that constitutes collateral under the promissory note.