How do I Secure a Promissory Note Without a Mortgage?

by Alice Stuart

A promissory note is a legalized version of an IOU. In essence, a promissory note is an agreement listing what is being borrowed, from whom and when repayment will be made. The agreement is then signed and frequently notarized, and then the lender will hold the note until the debt is repaid. In many cases, the lender requires some form of collateral to secure the loan. Although many people think of their home as the primary item of value they can use to secure a loan, many other assets are acceptable.

Look at your property and determine what you can use to secure the promissory note. You can use any number of things besides the title to your home. If you own other property, you can use that—including, depending on the size of the loan, the title to your car, boat or RV. Additionally, you can use things like stocks and bonds, or future payments from things like lottery winnings.

Discuss your property options with the lender. See what the lender is willing to accept as collateral on the loan. Property that adds to the full value of the loan may be required, or the lender may accept a percentage of the amount that is due. Negotiate with the lender to agree on an amount and type of collateral.

Fill out the promissory note, and list the amount you are borrowing, the terms of the loan (interest charged, etc.) and what is being used to secure the loan. If you are using real property like a car or stocks, have the title or the stock ownership documents with you when you are filling out the note.

Sign the promissory note. Have the lender sign as well. Strongly consider having it notarized as an added legal protection, proving that both of you signed it in front of witnesses.

Make a copy of the promissory note for your records. Give the lender the original of the promissory note as well as any proof of ownership for the property being used to secure the promissory note.

Tip

  • The promissory note is held until the loan is paid in full. It is then returned to the borrower.

Warning

  • Never sign a loan agreement that you are unable to repay.

Items you will need

  • Promissory note
  • Documents proving ownership of assets

Photo Credits

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