What is Note Purchase? (2024)

FAQs

What is a note purchase? ›

A note purchase is a type of transaction whereby the holder of a promissory note secured by property sells the right to receive repayment from the borrower under the note along with the security interest in the property that secures such repayment.

Investing in real estate notes is generally the purchase of an existing mortgage. And when you purchase a mortgage note, you become the lender. You have all the rights of the lender.

A promissory note is a written agreement between one party (you, the borrower) to pay back the loan issued by another party (often a bank or other financial institution). Anyone lending money (like home sellers, credit unions, mortgage lenders and banks, for instance) can issue a promissory note.

Note-on-note financing involves an investor (the “note-on-note” lender) providing a loan to a bridge lender, which is secured by an assignment of the underlying loan as collateral for repayment. Typically, note-on-note lenders advance between 60% and 80% of the underlying loan amount.

The bought note is proof that the purchaser now owns the note, while the sold note is proof that the seller has sold the note. These notes are typically used in financial transactions and can be helpful in resolving any disputes that may arise.

Notes payable: Essentially a written promise to pay a specific amount of money at a specified future date or on demand, these debts can be short or long-term and usually involve formal written contracts with banks, credit companies, or other financial institutions.

Understanding Notes

A note is a debt security obligating repayment of a loan, at a predetermined interest rate, within a defined time frame. Notes are similar to bonds but typically have an earlier maturity date than other debt securities, such as bonds.

Note Purchase Price means the principal amount outstanding under the Note as of the Closing Date, together with any interest thereon, and any costs and expenses under any Facility Document, all as calculated by the Seller.

The difference in returns can be significant, making them an enticing option for investors seeking better growth, it's important to note. Higher yields come with increased risk. However, note the potential for substantial passive income makes it worth considering. Due diligence is crucial to mitigate these risks.

If the borrower does not repay you, your legal recourse could include repossessing any collateral the borrower put up against the note, sending the debt to a collection agency, selling the promissory note (so someone else can try to collect it), or filing a lawsuit against the borrower.

How legal is a promissory note? ›

Promissory notes may also be referred to as an IOU, a loan agreement, or just a note. It's a legal lending document that says the borrower promises to repay to the lender a certain amount of money in a certain time frame. This kind of document is legally enforceable and creates a legal obligation to repay the loan.

Promissory notes don't have to be notarized in most cases. You can typically sign a legally binding promissory note that contains unconditional pledges to pay a certain sum of money. However, you can strengthen the legality of a valid promissory note by having it notarized.

Situations of Preference

If it's just a money exchange between friends or family with no complicated terms involved, a promissory note should do. But if it's business or involves substantial amounts of money or complex conditions, better stick with loan agreements.

Promissory Note Vs. Mortgage. A promissory note is a document between the lender and the borrower in which the borrower promises to pay back the lender, it is a separate contract from the mortgage. The mortgage is a legal document that ties or "secures" a piece of real estate to an obligation to repay money.

A promissory note is a simple document that is not as complex as a loan agreement, and may be shorter and less detailed. It is a useful way of recording a promise to pay back money. Also, it is a good way to establish a clear written record or paper trail of a loan between individuals or entities (such as banks).

A note is a debt security obligating repayment of a loan, at a predetermined interest rate, within a defined time frame. Notes are similar to bonds but typically have an earlier maturity date than other debt securities, such as bonds.

This is because when you buy a note, you're essentially purchasing the debt associated with a property rather than the property itself. If the property goes into foreclosure, you may still be able to recoup your investment, whereas if you'd bought the property outright, you could lose everything.

A loan note is much the same as an IOU / bill of exchange. It is an agreement between a company and an investor whereby the investor agrees to make a loan to a company, and the company agrees to repay the loan by an agreed date, usually with interest added on.

The key differences between a mortgage and a promissory note can be summarized as follows: The purpose of the document. A mortgage creates a security interest in the property (a lien) for the lender, while the promissory note serves as the borrower's written promise to repay the debt.