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Notes


What is a "Note" in Texas Real Estate?

A note is a written promise to pay money to another.  The note or the promissory note should clearly set out who is owed the money; where the payments are to be paid; who will repay the debt; how the debt will be repaid (frequency of payments); the interest rate that will accrue on the unpaid principal balance of the note; the final maturity date; events of default; notices of default; collateral securing the note;  and prepayment rights.  Notes may be fairly basic, and notes may be quite complex.

 

What types of transactions dictate a "Note" in Texas Real Estate?

The type of transaction will dictate whether or not the terms and content of the note may be modified or changed.  If you are borrowing money from a commercial lender to finance the purchase of a home, the loan documents (including the note) are not negotiable, period.  However, if the seller is financing the sale of a home or a similar transaction, or if you are borrowing money from a relative to finance the purchase, the content of the note and the loan documents are often negotiable but their content should be agreed upon when the earnest money contract is signed, and the agreed format of the loan documents should be attached to the contract as exhibits.  Attempting to negotiate the revision of loan documents at the closing of the sale and purchase can indeed turn into a pretty ugly nightmare.  It is a much better practice to negotiate the content of the note and deed of trust during contract negotiations.  Depending on the terms of your earnest money contract, you may or you may not be able to change the content of your loan documents.
 

What are some common issues related to Notes in Texas real estate?

When the lender and the borrower are both sophisticated in their knowledge of land and its value, occasionally the lender and the borrower may agree that the borrower will not be personally liable for repayment of the debt (represented by the note). Under this situation, the lender is confident of the value of the property securing the note (the security document in Texas is called a deed of trust) and the lender agrees that in the event the borrower is unable to repay the note, the lender will look solely to the land (after a foreclosure under the deed of trust) to satisfy the unpaid balance of the note.  This is a fairly complicated area, and there are varying degrees of "no personal liability" under the note and under the deed of trust.  If you desire to limit your liability under the note, consult a Texas real estate attorney for advice in this area.

I regularly assist clients in drafting, reviewing, interpreting, modifying, and negotiating  all different types of notes to meet their individual needs.
 

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