How Do I Make Sure I am Repaid for a Loan When the Debtors Are Selling Their Home in a Divorce?
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Answer:
The answer will depend on all the facts and documents involved. A deed of trust is a document which pledges real property to secure a loan, used instead of a mortgage in certain states. Since there is already a mortgage on the property, a transfer may accelerate a due-on-sale clause, requiring the balance of the loan to be paid in full. The first mortgage will have priority on any later liens on the property, so that if the property is sold, the lienholders ahead of you will be paid first and you will collect out of any remaining proceeds. We are prohibited from giving legal advice, as this service provides information of a general legal nature.
It may be possible to create a new promissory note, using other assets as collateral for the loan, such as stock, bonds , etc. 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 borrower's property after it is divided among all creditors. Collateral may be many different types of property, such as personal property, shares of stock of a company, inventory, accounts receivable, etc.
The parties to the loan must sign it and the notary must witness the signatures. The contract may contain a choice of law clause as to where it will be litigated if a dispute arises. Choice of law refers to what jurisdiction's law is to be applied when there is a dispute in a transaction. The loan document may then be recorded in the county recorder's office where the property is located. A secured promissory note creates a lien on the property, but may be lower in priority than previously filed liens.
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.
Promissory Note: A promissory note is a written promise to pay a debt and is typically signed at the time of the loan. It is an unconditional promise to pay on demand or at a fixed or determined future time a particular sum of money to or to the order of a specified person or to the bearer.
Cognovit Note: A cognovit note is a note in which the maker acknowledges the debt and authorizes the entry of judgment against him or her without notice or a hearing : a note containing a confession of judgment. This type of note is not valid in many States.
Collateral Note: A collateral note is a note secured by collateral. Same as a secured note.
Demand Note: A demand note is a note payable on demand from the person who is owed the money.
Floating Note: A floating rate note (or adjustable rate note) is a note where interest varies.
Recourse Note: A recourse note is a note where the default may result in loss of collateral and also personal suit and judgment. Most notes are recourse notes.
Renewal Note: A renewal note is a note that renews a previous note due date.
Unsecured Note: An unsecured note is a note that is not secured by any collateral but only the promise to pay (i.e. signature only is required to loan the money).
