Unless YOU provide the buyer with seller financing, you will not need a promissory note. The promissory note is a document used to outline the terms and conditions under which a lender has agreed to loan money. Whether the lender is a mortgage company, a bank, or the homeowner makes no difference. All three will require that a promissory note be fully executed. Notes may be either secured or unsecured. If the note is secured, that means there is some type of physical asset being held as collateral. Most of the time, the collateral given is the property or item that the note is made against. In the case of real estate, the collateral is most likely to be the property for which the note is being made. However, it doesn’t have to be. It could be anything else the borrower has that may be of some worth or value to the seller. It could be a boat; it could be a car; or it could be a vacant lot or other real property. If the note is unsecured, that means there is no collateral being used to secure the note. The seller or lender is accepting on good faith that the borrower will have the ability to repay the loan. Usually that good faith is supported by the borrower’s proven credit history, which has demonstrated in the past the ability to repay a loan or other financial obligation.
The promissory note also contains provisions for the repayment terms stipulated in the note. These include the amount of the loan, the interest rate and amortization or repayment period, and any prepayment penalties that may be imposed for paying off the note prematurely. In addition, the note may contain an acceleration clause which would necessitate the note’s being repaid immediately should certain conditions, such as the transfer of ownership to another party, arise. Finally, other lender requirements that may also be included in a promissory note are escrow provisions for taxes and insurance, minimum insurance amounts, the standard of care for property condition, a due-on-sale clause, and default provisions.
The Notice of Termination Contract is one form that, hopefully, you will not need. The form is self-explanatory in that it provides the buyer with the means to cancel or terminate the sales contract. The Notice of Termination does not grant buyers the right to terminate without just cause. The buyer can only terminate for legitimate reasons as set forth in the sales agreement, such as not being able to qualify for financing. While you probably will not need this form to sell your house, it is a good idea to be aware of it in the event that your buyer terminates his or her agreement with you.