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PROMISSORY NOTE AND SECURITY AGREEMENT form

hey this is Seth and in this video I'm going to give you a really quick overview of what a prom note is and how you can put one together really quickly if that's something you need to do promissory note is a type of lending instrument that has been used for centuries and essentially what this is is just a simple document that lays out the terms and conditions between a borrower and a lender and it basically just explains that there is a set amount of money that the borrower owes to the lender and it usually details any interest payments that are included with that and promissory notes can be set up in all kinds of different ways you can set them up with balloon payments so basically there's interest-only payments for a certain amount of time and then boom the entire balance is paid off or you can set it up with what's called straight-line amortization which is basically just a fixed payment for the life of the loan and then there isn't a balloon payment at the end and a lot of times promissory notes are used in conjunction with real estate transactions whether you're getting a bank loan or a mortgage or a deed of trust promissory note is part of the documentation that spells out the terms of those payments between the borrower and the lender now it's important to point out that the promissory note is a different thing than a mortgage and a promissory note is a different thing than the deed of trust in those kinds of real estate transactions the mortgage is what actually secures the property so that's what gives the lender the right to go in and take that property back if the borrower ever stops paying whereas the note simply spells out the obligation to pay so a lot of times the information that's baked into the note won't necessarily be in the collateral instrument and the information baked into the collateral instrument won't necessarily be in promissory note sometimes you'll see some cross over there but that's not necessarily always the case now promissory notes of course are not just limited to real estate transactions these are used between businesses governments individuals all kinds of different situations where one party owes money to another party whether it's one government that's lending and other government a trillion dollars or if it's pair it's lending their child a thousand bucks and they want to make sure they get paid back if there is a set amount of money that's being lent from one party to the other and the lender is actually expecting to get paid back at a certain point of time with a certain amount of interest at certain intervals it's a really good idea to create a note just so there's no confusion about what's going on and it's actually something that can legally back up the lender if the borrower ever stops paying it's a written record of the borrower's obligation to pay so if you're looking for a note template there's all kinds of versions out there some of them are very very simple one-page documents others can be ridiculously complicated but the one that I want to show you right here is really easy to fill out it's with a website called a Rocket Lawyer the reason I like Rocket Lawyer is because they give you a very simple questionnaire we just enter in all the basic information that pertains to your situation and it will create the entire document for you so it kind of helps you make sure you don't miss any any items or leave anything blank that should be filled in and I don't want to play this the same as getting a lawyer to do it for you because it's not but if you're intent on doing this yourself and you're willing to take any risks inherent in that on the iraqi lawyers are great way to go so if you have a few minutes I'm going to take you through the Rockler website and you show you exactly how to fill it out just for a hypothetical situation and you can see what I mean and you'll kind of get an idea for just how easy it is so follow along and I'll show you how it's done okay so I'm going to include a link beneath this video that links directly to this exact page that you're seeing right now so if you just click on that it'll bring you right here and all you got to do to get started on your promissory note is just start by selecting whatever state you're in so we would just go ahead I guess in this case we'll do California in this example and then the first thing you'll see here is you need to enter in the loan amount and the start date so in this hypothetical example I'm just going to put a loan amount of $20,000 and for the start date we'll put January 1 2017 and then who is borrowing money we're going to say this is between two people but if you wanted to do it between businesses you could obviously do that to and in this example I'm going to say that I am the lender and the southern person will say his name is John Smith he is the borrower so we'll start by putting in the name of the borrower and then we'll put in his mailing address as well and this is a fake person just in case you were wondering and if there were multiple borrowers you would check this box down here but just keep it simple we'll just say it's between two people in this case and then who is lending money we're going to say a person and we'll say it's me on the lender and then again if there were multiple people that were acting as the lenders together you could check this but again I'm not going to go there here and then well John Smith have to pay interest on the loan we're going to say yes this is an interest-bearing note and then what's the interest rate John Smith will pay you can really put whatever interest rate you come up with in this example I'm going to say 8% and the beginning date will say it's going to begin on January 1 as well and also keep in mind if you ever get hung up or stuck on any one of these questions perhaps you just don't know how to answer it or you don't understand what you're supposed to be putting in here at any point in time you can enter in a little question over here just type in you know let me just say whatever your question is and then click that ask button and it will go directly to an actual attorney and they will respond to you with some kind of feedback on how to complete the document so you're not necessarily on your own if you're filling out a promissory note through Rocket Lawyer you can get help and usually I think we'll find the explanations they they put here a pretty pretty helpful like it's pretty rare that I don't understand it after reading that but if you do find yourself in that situation you do have access to attorneys through this side as well so in this case if the promissory note is not paid by the due date with John Smith be charged a higher interest rate on the remaining principal amount so basically is there some kind of a penalty as a result of not making that payment and in this case we'll say sure yes and then what will the default rate be I don't know we'll bring it up to maybe nine point nine nine percent and then how will the promissory note be paid we're going to say in installment payments of principal and interest that's probably the most common way that people do it but if you wanted to do on demand you just get it all whenever you bandit that's one option or you can set one specific date at which you get paid everything so you know maybe three years from now eat all of it but they don't have to make payments in the mean time or installment payments of interest only so the principle balance doesn't go down but they do pay you that interest income so a lot of different options this top one is usually what I do so that's what I'm going to go with and one of the details of the repayment agreement I'm going to say that this loan is going to be paid off over the course of five years so for doing one payment a month that would be 60 payments all together and then balloon payment that's like if the loan was going to amortize over 15 years but we were only going to extend these payments for five years so basically at the end of the five years there's still a lot of principal owing so at that point I would enter into what the balloon payment would be in this case I'm not going to put a balloon payment I'm just going to have it be amortized with principal and interest over five years so that's how all handle this and then should an amortization schedule be included in this promissory note that's one of the really nice things about Rocket Lawyer is that if you do choose the option that I'm doing or whatever whatever you're putting in there it will actually calculate what those payments are and it will create an entire loan schedule of those payments that need to be made just so there's no confusion about how much needs to be paid what those payments are going to principal and interest and when those payments are due so I'm going to say yes definitely in this case and then we'll await fee be charged if it's installment payment is past due I'm gonna say yes absolutely for me I'll just say a late fee of 25 bucks it probably sort of depends on the amount of the loan on what you think is appropriate but if you want to do fee put that in there and then win with a late fee be charged I usually say like 15 days after the due date but if you want to do 10 days you could do something like that to or you know whatever you want obviously and then well John Smith receive a discount if the promissory note is paid off early I'm gonna say no but if for some reason you want to give an incentive to your borrower to hurry up and pay you off sooner you could say yes and then specify what that discount would be you can early payments be made on the loan without penalty in my case for my situation I almost always say yes that's fine and if they pay it without penalty because I'd rather be paid off earlier than not paid at all so that's what I would do but again that's not what you have to do at all whatever the situation is between the borrower and the lender in your situation that will govern whatever the right answer is for you so I'm going to click yes here click continue and then will this promissory note be secured with collateral personal property or real estate if this is like specifically for a real estate deal say if you're doing a promissory note with a deed of trust then you would say yes absolutely you're obviously free to say no as well in this case I usually use this kind of thing in conjunction with a deed of trust if and when I'm ever using a note so I'm going to say yes and then which type of property will John Smith used to secure the promissory note personal property that basically means equipment so if there was some piece of equipment that you could remove from a property or take and then liquidate to recover from the defaulted amount that's what personal property is real estate is exactly what it sounds like real estate if the borrower has land or a house or some kind of property that's the ground or fixed to the ground that would be real estate or none so again I'm going to choose real estate in my case and then what is the real property being secured by I usually do a deed of trust because usually when I'm using this document it's in conjunction with a you know seller finance piece of real estate that I'm selling which I'm using a promissory note at all it's because it's in conjunction with the dated trust a mortgage deed is another option in some states but in most of the places where I work the deed of trust is the one to use and then when was the deed of trust signed we're going to say the closing date for everything is January 1 so we'll stay consistent with that and then what is the address of the real property being held this security you would just put in whatever that address is so I'll just make something up here and then which state's laws apply to this promissory note and we're going to say California because that's where the property is that's what the borrower is and that's just kind of one more most of the stuff is if you wanted to you could put whatever state you are residing in so that any court cases have to come to you to get resolved it's really whatever you want to do I'm not going to tell you what the best option is that's kind of up for you to decide so once you got that selected you would click continue and then will there be a cosigner on this loan so in other words is it going to be another person supporting John Smith to be legally obligated to make the payments if there is obviously you could put them and include their information I'm going to say no just keep it simple and then we'll Seth Williams be able to sell their transfer the loan to another party so if you ever wanted to be able to sell the note and basically just get paid that's something some people like to do I personally don't see why not it's nice to just have the option doesn't mean you have to do it so I'm going to say yes in this case and then once that's finished Rocket Lawyer will generate the promissory note document for you with all the information you put in there and as you can see it's pretty straightforward and simple this shows us exactly what the language of the note looks like there's the amortization schedule as well it's calculated all the payments and lists all the due dates and we can also go ahead and download this I'm going to download as a Word document and also keep in mind if you want you can sign this right here digitally so why don't I just go ahead and do that and then once you've signed it's pretty cool all you have to do is enter in the email address of the borrower whatever that is and then it will send this to them and then they can sign it digitally so you don't even really have to print it off if you don't want to again that's totally up to you but once you've downloaded it you can go ahead and open it up and then you can see it right here change the view of this thing a little bit and there you have it as you can see it's pretty straightforward and easy it's not a terribly complicated document it's got all of the blanks where people need to sign and it's pretty easy to follow you just read the information if you have any questions about it and obviously since this is a Word document you can edit any of this if you want just highlight it and delete it and replace whatever you want to say if you wanted an attorney to review this for any reason you could you could do them and then down here we've got the loan amortization schedule and it looks a little messed up if you wanted it to look a little bit sharper you could download the pdf version there we go so on the PDF it's a little bit easier to read the amortization schedule and that's the nice thing is that you can download it in editable format or you can download it in a format that cannot be changed say if you wanted the email this to the other party and you didn't want them to be able to mess with anything this is a great way to do that so yeah that's how rocket load works if you want to put together a promise right now it pretty easy to do Rocket Lawyer is a really solid option I've been using this site for several months now I found it to be really helpful they've got like literally hundreds of different legal forms and templates that can be specified based on whatever state you working in pretty much any document you can imagine it's all here so if this is something you want to check out the price is really not bad especially if this is something you're going to be using out an ongoing basis it's set up as a subscription this is the one that I'm currently using right now and if you want to you can get a little discount if you pay for a full year at a time and also just keep in mind if this is the kind of thing where you only need this for one document and that's it it's totally feasible to just subscribe for one month and then unsubscribe and get your document and be done if you ever need to come back it's really easy to do that so it's not like you have to commit to several years or pay for this for the rest of your life it's just you just sort of use it for what you need it if it's not useful to anymore then you can just unsubscribe it's pretty pretty simple I do have an affiliate relationship with Rocket Lawyer just for full disclosure I have a link beneath this video like I mentioned before if you click on that and fill out your promissory note through that link I will get a small commission if you decide to sign up for the Rocket Lawyer service yeah that's it I hope this video was helpful to you on some level and I appreciate your time and checking this out and hopefully I will see you again soon