Evidence of short-term debt
A straight note calls for the entire amount of its principal together with accrued interest to be paid in a single lump sum when the principal is due. Unlike in the installment note variations, a straight note does not include periodic payments of principal. [See RPI Form 423]
Interest usually accrues unpaid and is due with the lump sum principal installment. Thus, this form of real estate financing is sometimes referred to as a sleeper trust deed. Occasionally, the accruing interest is paid periodically during the term of a straight note when principal is not due for a year or two.
The straight note is typically used by lenders or carryback sellers to evidence short-term debt. Straight notes are rare in real estate transactions since most mortgages are long-term debts. However, straight notes are used to evidence short-term real estate obligations, like bridge loans used to purchase a property when the buyer’s funds needed for closing will not be available until later.
