The promissory note

Most real estate sales hinge on financing some portion of the purchase price. A buyer promises to pay a sum of money, in installments or a single payment at a future time, to a lender who funds the sales transaction. Alternately, the buyer may make payments to the seller under a carryback financing arrangement.

Given in exchange for property or a loan of money, the promise to pay evidences a debt owed by the buyer and payable to the seller or lender to whom the promise is made.

Alternately, the buyer may make payments to the seller under a carryback financing arrangement, and the seller makes payments on the underlying senior mortgage.

The promise to pay is set out in a written document called a promissory note. A promissory note represents an underlying debt owed by one person to another.

The signed promissory note is not the debt itself, but evidence the debt exists.

The buyer, called the debtor or payor, signs the note and delivers it to the lender or carryback seller, called the creditor.

The note can be either secured or unsecured. If the note is secured by real estate, the security device used is a trust deed. When secured, the debt becomes a voluntary lien on the real estate described in the trust deed.

When a secured debt has been fully paid, the trust deed securing the debt is removed from title to the secured property, a process called reconveyance.