What to know.
Your Guide to Successful Transactions
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Promissory Note
A promissory note is a legally binding document wherein one party (the "maker" or "promisor") commits to repaying a specified sum of money to another party (the "payee" or "holder") within a defined timeframe. It formalizes loan or debt terms and includes details like principal amount, interest rate (if applicable), repayment schedule, due dates, and collateral.
Promissory notes are versatile tools used in various transactions, offering lenders a clear commitment to repayment and borrowers a precise payment understanding. They are enforceable by law, providing a reliable means of securing loans and ensuring accountability between parties.
Deed of Trust
A deed of trust serves as a reliable and legally binding agreement in real estate transactions, involving three parties: the borrower, the lender, and the trustee. Unlike a mortgage, it incorporates a neutral trustee who safeguards the interests of both parties. The borrower pledges the property as security for the loan, and in case of default, the trustee oversees the foreclosure process.
This three-party system instills trust, transparency, and accountability in property transactions, providing lenders with security and borrowers with financing options beyond traditional criteria. In essence, a deed of trust ensures a fair and impartial process, promoting confidence in real estate dealings.
Lender’s Policy
A lender's policy, also known as lender's title insurance, is a protective insurance policy purchased by a lender to safeguard their financial investment in a property during the loan process. It ensures that the lender is protected against unforeseen title issues, defects, or liens that could affect their security interest in the property.
This policy covers potential losses and legal expenses in case of title disputes. Unlike an owner's policy, which protects the homeowner, a lender's policy is focused on the lender's interest. Borrowers typically cover the cost of this policy as a one-time premium at the time of closing. Understanding the lender's policy is crucial for borrowers and lenders alike to manage risks effectively in real estate transactions.
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