Word of the day
A broker who accepts a promissory note as a deposit from a prospective purchaser must generally disclose to the seller that the buyer’s deposit is in the form of a promissory note. The broker who does not inform the seller risks license suspension or revocation. This requirement stems from the agent’s common-law duty to inform the principal of all facts relating to the subject matter of the agency that would affect the principal’s interest. It is preferable that the broker accept a promissory note rather than a “hold check” (a check that the buyer instructs the broker to hold instead of cashing) or a postdated check. It is good practice to insert a clause in the note to the effect that the prevailing party in any dispute over the note is entitled to costs of collection, including attorney fees.
In real property financing, the promissory note, which is sometimes called the mortgage note, serves as evidence of the debt for which the mortgage on the property is the security. If the security is insufficient to cover the indebtedness, the holder of the note can obtain a deficiency judgment against the debtor for the balance unless the note is labeled a nonrecourse note.
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