Trust Deed: Notes

The trust deed and note are the required documents whether you are using real property to secure the money you loan, or you are investing in a deed of trust. The trust deed becomes a lien on the property, securing the repayment of the money that is owed according to the stipulations in the note. The note shows the initial money owed and details the conditions for repayment of the trust deed.

All notes have the same purpose with the same end result, but there are several types of notes that you can obtain.

The note most often used is a promissory note. The borrower details in writing how much he will pay back, when he will pay and to whom, at a given date in the future.

In transactions involving real estate, the amortized note is used most often and stipulates that the borrower make payments every month of interest and principal for the duration of the loan.

A holder in due course note refers to someone who bought the not for value but was unaware of any problems or issues concerning the note when it was first purchased. The law protects the person who holds this note because it is assumed he is holding the negotiable note in good faith.

The straight interest only note is one in which no principal payments are made for the duration of the loan. The interest payments occur monthly and are negotiable.

Use extreme caution with the recourse note. The endorser agrees to give payments to all holders involved. A person could recourse a note so all payments go to just one person and nobody else so as an endorser you should think twice before using this note. The payment liability is very broad.

A note without recourse gives no guarantee of payments to future holders.

The demand note isn’t used often and only when payment is required in full at any given time.

Some notes contain an “or more” clause. This clause gives the borrower the right to pay the loan off early without penalty or to increase monthly payments as he sees fit. The clause is by the loan payment amount. The clause may also be removed, in the event that both parties agree, by an escrow agent.

Some notes are subject to negotiation but others are not. A negotiable note has to include the option of a promise to pay without condition that is based on the borrower’s future actions. It must also include a payment amount and date that is firmly set and payable to the holder. Most notes can be transferred with a signature.

In the event you lose a note, you must replace it immediately because it is not like the trust deed where the original is recorded. Even a copy of the original note is not worth anything. Only the original note is the life of the transfer and losing it is expensive.

Basically if the note is lost the only way to replace it is for the parties involved to draw up a new note. You may need a lawyer if for some reason this isn’t possible. You will have to go to court to restore the note in such a case. However in some states all you need is a lost note affidavit in order to restore the lost note.

The best to keep any papers and documents of great importance is a safety deposit box. Keep copies of all your documents at home so you can take a look at them whenever you find it necessary.

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