Does Priority Transfer When a Promissory Note is Transferred?
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.
In order to have the right to be first or ahead of the rights or claims of others against the property (have priority), the note may be "perfected", which typically means filing the note on the recorder's office in the county where the property is located. The general rule is that those who file first are ahead in line to collect on a claim and have priority over subsequent filers. If a note has already been recorded, so as to create a lien on the property, the priority of the creditor will generally be automatically transferred to a new creditor if the note is transferred. However, this may be altered by contractual terms.
