You have recently come into some money. You are thinking you would like to grow it by lending it out. Fortunately for you, an extended family member, he is an accomplished real estate investor. He asks you to fund his next acquisition with a standard promissory note. But a friend advises that you use a deed of trust. Do you know why?
Promissory notes and deeds of trust are pretty typical in the hard money gain. Actium Partners, a hard money firm located in Salt Lake City, explains that a typical lender will not make a hard money loan without a deed of trust. Promissory notes alone are insufficient. Actium says that promissory notes do not provide adequate security. You need a deed of trust (or trust deed) for that.
A Promise to Repay
The word ‘promissory’ is more or less the adjective form of the word ‘promise’. Therefore, a promissory note is just a promise to repay. It is a promise in written form. Because the promise is in writing, a promissory note can make collecting on a bad debt easier. But the promissory note has one fatal flaw: it is a private note between two parties. It is not recorded anywhere.
A belligerent debtor could argue that a promissory note is invalid. He could argue that he never signed the note. Lender and debtor could wind up in court while the judge is looking at one person’s word against another’s. How do you settle that sort of … Read More
