How do I legally encumber the equity in a property for the benefit of the private party lender?
Full Question:
Answer:
A promissory note may be secured or unsecured. When it is secured, it means that property, called collateral, may be taken by the lender if the borrower fails to pay the loan payment. If the debtor files bankruptcy, the lender may be able to recover the value of the loan by taking possession of the specified collateral instead of receiving only a portion of the borrowers property after it is divided among all creditors. Collateral may be many different types of property, such as shares of stock of a company, inventory, accounts receivable, etc.
I am unable to give a legal opininion as to forms required in a particular case, but the claim of an encumbrance on a property is generally filed in the county where the property is located. The answer will depend in part on whether there any exisitng loan on the property and any restrictions on encumbering it. A promissory note may be amended to add collateral.
A promissory note may provide for payments to be made in installments or in a lump sum. The terms may provide for a series of smaller payments at the beginning of the loan period and a larger balloon payment at the end of the loan period. The option for a confessed judgment agreement, also called a cognovit note, may also be included. A confessed judgment agreement requires the debtor not to claim defenses and agree to have a judgment entered against him if he fails to pay and the matter is taken to court.
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