Promissory Note

A Promissory Note is a legal document in which one party agrees and promises in writing to pay a set sum of money to another person. Typically in real estate transactions, a deed of trust must be recorded on real property to secure the Promissory Note. For example, a Promissory Note would be necessary when residential real estate is being sold to a buyer who needs to obtain a mortgage or loan. The buyer would be required to sign a Promissory Note to the seller for the amount of the loan needed to pay off the real estate purchase. The buyer is usually secured by a trust deed on the land which is recorded in the county where the property to be purchased is located. Escrow creates the Promissory Note and the trust deed in the above scenario and oversees the signing of these documents. The significance of this document is that the lender is protected, with security, for the Promissory Note in the event that the borrower fails to make payment at anytime in the future. Generally this financial device describes one’s indebtedness to another, often associated with investors lending money to firms in return for fixed payments over a certain period of time.