Promissory Notes

A promissory note, referred to as a note payable and more commonly as just a “Note”, is a contract wherein one party makes an unconditional promise in writing to pay a sum of money to another party. The repayment may be either at a fixed or determinable future time or on demand of the payee and will be under specific terms.

The terms of a note usually include the principal amount, the interest rate, if any, the parties, the date, the terms of repayment (which could include interest) and the maturity date. Provisions are often included concerning the payee’s rights in the event of a default, which may include foreclosure of the borrower’s real property or other assets. Promissory Notes play an important part of real property law, as any person using his or her real estate as security for a loan is typically required to sign a Note. Proper drafting of a Promissory Note takes into account Usury Clauses, under which interest is not permitted to exceed the legal rate, intangible tax, under which a tax is due to the State of Georgia for any security interest in real property that exceeds three years, and penalties for default under the terms of the note. In Georgia, Notes used in conjunction with real estate purchases are customarily accompanied by a Deed to Secure Debt, a form of a mortgage, under which the borrower pledges his or her real property as security for the debt evidenced in the Note. The Deed to Secure Debt is recorded in the real property records of the Clerk of Superior Court of the county where the real property is located in order to give notice to other potential lenders and to establish an order of priority in the event of default and foreclosure.