For value received, the undersigned, _____________________________, (“Borrower”), located at ________________________________________, __________________________________, ______________________, promises to pay to the order of _____________________________ (“Lender”), located at ________________________________________, __________________________________, ______________________, the sum of $_________, plus interest, accruing at the rate of ______% annually, on the unpaid balance.
1. Payment. Payments shall me made in monthly installments of $__________, beginning on _________________________, and continuing until _________________________, (the “Due Date”), at which time the remaining unpaid principal and interest shall be due in full. All payments shall first be applied to outstanding late fees, then to interest and the balance to the principal amount.
2. Late Fee. If payment is not made within __________ days as agreed upon in the payment terms, Borrower shall pay an additional late fee of $ __________. This late fee shall be paid as liquidated damages in lieu of actual damages, and not as a penalty. Payment of this late fee shall, under no circumstances, be construed to cure any default arising from or relating to such late payment.
☐ This Note shall be secured by personal property in _________________________________________________________________________
_________________ (“Security”). The Security shall not be sold or transferred without the Lender’s consent until the Due Date. The Lender is not required to rely on the above security instrument and the assets secured therein for the payment of this Note in the case of default, but may proceed directly against the Borrower.
☐ This Note shall be secured by a Deed of Trust to real property commonly known as _________________________, _________________________, __________________________ (“Security”). The Security shall not be sold or transferred without the Lender’s consent until the Due Date. The Lender is not required to rely on the above security instrument and the assets secured therein for the payment of this Note in the case of default, but may proceed directly against the Borrower.
☐ This Note shall be secured by a Mortgage Deed to real property commonly known as _________________________, _________________________, __________________________ (“Security”). The Security shall not be sold or transferred without the Lender’s consent until the Due Date. The Lender is not required to rely on the above security instrument and the assets secured therein for the payment of this Note in the case of default, but may proceed directly against the Borrower.
4. Prepayment. The Borrower may prepay this Note, in whole or in part, prior to the Due Date without premium or penalty. All prepayments shall be first applied to outstanding late fees, then to accrued interest and thereafter to the principal loan amount.
5. Acceleration of Debt. If Borrower fails to make any payment under the terms of this Note when due, the remaining unpaid balance and any accrued interest shall become due immediately at the option of Lender.
6. Collection & Attorneys’ Fees. In the event of default of this Note by Borrower, Borrower shall pay to the Lender all costs of collection, including reasonable attorneys’ fees.
7. Default. Borrower will be in default if any of the following events occur: (i) if Borrower does not pay the full amount of each monthly payment when due; (ii) if Borrower is involved as a debtor in a bankruptcy proceeding; (iii) if Borrower becomes insolvent and is unable make the agreed-upon payments; (iv) at the death, dissolution, liquidation or incompetency of the Borrower; or (v) if Borrower makes any untrue statement to the Lender or misrepresentation for the purpose of obtaining or extending credit. In the event of default, this Note and any obligations of the Borrower to the Lender, shall become due immediately, without demand or notice.
8. Severability. If any provision or part of a provision of this Note is held to be illegal, invalid, or unenforceable by a court or other decision-making authority of competent jurisdiction, then the remainder of the provision will be enforced so as to affect the intention of the Parties, and the invalidity and enforceability of all other provisions in this Note will not be affected or impaired.
9. Waiver. Borrower waives presentment for payment, protest, and notice of protest and demand of this Note. The parties acknowledge that no breach of any provision of this Note shall be deemed waived unless evidenced in writing. A waiver of any one breach shall not be deemed as a waiver of any other breach of the same or any other provision of this Note. No failure or delay by Lender in exercising Lender’s rights under this Note shall be considered a waiver of such rights.
10. Assignment. Neither party may assign or delegate its rights or obligations pursuant to this Note without prior written consent of the other. Any assignment or delegation in violation of this section is void.
11. Successors and Assigns. The terms and conditions of this Note shall inure to the benefit of and be binding upon Borrower’s successors and permitted assigns.
12. Notice. Any notice required hereunder shall be in writing and deemed to have been sufficiently given when delivered in person, by email, by facsimile, by a recognized national overnight courier service or by certified mail to the address of the respective party above.
13. Execution. This Note may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Execution and delivery of this Note may be evidenced by electronic means.
14. Governing Law. This Note shall be construed in accordance with the laws of the State of ______________________.
15. Amendment. There are no verbal or other agreements that modify or affect the terms of this Note. This Note may be amended and modified only by a written agreement signed by Borrower and Lender.
IN WITNESS WHEREOF, this Note has been executed and delivered as of the date first written above.
Signed, the __________ day of _________________________, __________.
Borrower Printed Name
Lender Printed Name
Please note that this article is not a substitute for professional legal advice; it does not create an attorney-client relationship, nor is it a solicitation to offer legal advice. We recommend you seek the appropriate legal advice from a practicing attorney licensed in your jurisdiction.
What is a Secured Promissory Note?
A secured promissory note is a note that pledges collateral as “security” for the loan. Collateral usually comes in the form of real estate or personal property. Essentially, the borrower gives the lender the right to claim this asset if the borrower defaults on the loan, so the lender can then sell the asset and get his money back.
When Should You Use a Secured Promissory Note?
A secured promissory note is one of the safest ways for a lender to loan money, assuming the “security” pledged under the note is of equal or greater value than the money loaned, and assuming it won’t take a great deal of effort to sell or liquidate the asset. You should use this type of promissory note if you are at all unsure about the borrower’s ability to pay back the loan. Most financial institutions require collateral on larger loans.
What Should be Included in a Secured Promissory Note?
Along with the terms you’ll find in a non-secured note, like the amount being loaned, the date the loan should be paid back, and how it should be paid, a secured promissory note needs to also list the collateral that is being pledged to secure the note. A clear description of the collateral should be given. Real estate is typically secured through a mortgage agreement or deed of trust. Personal property may be secured through various ways, depending on what the property is. Business assets, for example, like inventory, equipment, or accounts receivable, may be secured using a financing statement, also called a “UCC” or “UCC-1” statement. To secure a motor vehicle, on the other hand, you have to reference the security interest on the title itself. Typically, you first identify the vehicle (VIN, make, model) clearly in the promissory note, and then add the loan details to the lien section of the title certificate and file the title certificate with the DMV.
Other names for this document include: promissory note with collateral, mortgage note, real estate note, promissory note secured by real property