Hello, I have a question about promissory notes, If I Ioan someone funds for real property what type of promissory note should I use?

Question

Hello, I have a question about promissory notes, If I Ioan someone funds for real property what type of promissory note should I use?

Answer

I'm tempted to say that if you don't already know, you may not be sophisticated enough in this kind of lending activity to take the risk.....and that's possibly true. Nevertheless, saying something like that sounds like being a haughty lawyer and I'll give you a suggestion, for what it's worth.

Most real-estate lenders expect to be collateralized, and usually by the same property for which the money is to be used by the borrower. Therefore, the note most often used is called a "(promissory) note secured by deed of trust" and the deed of trust effectively pledges the property described therein as collateral for the note itself. The deed of trust is then recorded, to place "the world" on official notice that the property described therein is pledged as collateral for the note.

It's relatively easy to find examples of promissory notes and their associated deeds of trust. Source #1 would be Web postings by various title-insurance and escrow companies, which use these documents every day and often post examples of them as advertising for their services. Source #2 would be to go to your County Recorder and look at examples that have been recorded........there will be plenty, and if you go at a time when the office isn't too busy, one of the clerks will probably be willing to assist you.

If you decide you need assistance, maybe inquire at a local title or escrow company, a real estate broker, or a local real-estate lawyer. Some thoughtfulness and caution is advisable in choosing the instruments you'll use, filling them out, getting them notarized, and recording the deed of trust, which ultimately provides your security. This is a well-worn path, as there is lots of activity in lending with real-estate security, but you don't want to step off the path.

Answer

You want to get a promissory note that is secured by a first deed of trust on the property to be purchased.