A responsible New York citizen might wonder what a Promissory Note is because one wants to make sure his/her money is protected by an official document. A Promissory Note is a legal paper used as a contract between the person or organization that provides money (a lender) to someone who needs the money (a borrower). Such notions as “lender” and “borrower” are official terms used in such kinds of contracts.
The main purpose of this paper is to clarify the conditions of the agreement between a lender and a borrower, which are also referred to as “parties” of the contract. There has to be an official paper when a loan is given, highlighting numerous issues concerning this loan. We will take a closer look at these issues later, but at this moment, it is important to introduce two key types of Promissory Notes in New York.
- A Secured Promissory Note
A secured promissory note is also sometimes called a “collateralized” note. In a sense, this is a document supported by some kind of property or other official documents concerning this property (like a car title). This means that is a case if the borrower will be incapable of paying the money back to the lender, the lender might get the property of the borrower as a payback.
This kind of promissory note is usually applied when the borrower does not seem trustworthy, and there is a high chance that his/her financial situation will not allow him/her to return the money to the lender. That is why lenders are always recommended to check the borrower’s financial affairs, if possible.
- An Unsecured Promissory Note
An unsecured note is an opposite case: this document is not supported by any property or documents on it. This kind of note might be chosen if a lender trusts the borrower and is sure that his/her financial business is fine, and he/she can afford to pay the money back.
The Interest Rate
For such contracts, an interest rate is an ordinary characteristic. The lender might set a certain percentage to be paid back in addition to the whole sum given to a borrower. In New York, the maximum interest rate to be set up is 16% over the total sum borrowed. This concerns loans that are lower than 250 thousand dollars. In case if the lender sets up an extremely high interest rate — for New York, it is 25% or even more — this will already be considered as a criminal affair.
Notarize or not notarize
For New York citizens, the Promissory Note is already considered legal without the visit to the lawyer. So, the answer is no — Promissory Notes in New York do not have to be notarized. But, there have to be signatures of the lender and the borrower, and the date, put on the paper by the borrower. If the case involves co-signers (a “guarantor” to pay the money back, in a sense), then his/her signature has to be put on the paper as well.
Key Steps for Writing a Promissory Note in New York1. Step one: Titling
In New York, it is a significant issue for any official document: the title has to be as precise as possible. As for the promissory notes, it is not enough to state that it is a “Promissory Note.” The title has to contain information about whether this note is secured or unsecured as well. In many cases, if the parties do not specify the type of the document in the title, the court will consider it to be unsecured, even if it was secured in its nature.2. Step two: Dating
This point refers to the official date of the creating of the document, not to the date of the signature. And since the note is not valid forever, the date matter to identify deadlines for some acts.3. Step three: Stating parties
At this point, the two sides using the note have to be specified. For each party — each role — there is a legal name: lender and borrower, and both these roles have to be identified using the full names of the sides. Usually, the name is written at first, and then, after the comma, the role is stated. For instance: Jessica Mary Jones, Lender.4. Step four: Stating addresses
This step refers to the mailing addresses of all parties involved. It is required to specify which party uses which mailing address with details on the city, the state, and zip code. If needed, the physical address can also be specified in the body of the document (usually for the Borrowers or Co-signers, if their mailing address does not correspond with the physical address). For the Lenders, the paper might include information about the payment address.5. Step five: Stating loan amount
The loan amount, also called principal loan amount, is the number without the interest rate that has to be paid back to the lender. The sum mentioned in the document is final. Thus, it has to be precise.6. Step six: Stating interest rates
This point of the promissory note has to identify the percentage to be paid to the lender annually.7. Step seven: Stating details of the payment
One of the key steps, and the final one in this list, is devoted to providing details about each sub-payment before the whole amount of money is returned to the lender. Under “details,” it is usually understood the following:
- concrete dates of sub-payments
- concrete amounts of sub-payments
- fees for the missed deadlines of the sub-payments
- specific payment address of the lender can also be stated in this section
The official promissory note also has to specify detailed information about the collateral if the note is secured. The lack of such a collateral description might signal to the court that the note is unsecured — thus, it will be treated correspondingly.
Clauses to Use in a New York Promissory Note
Below, New York citizens will find valid information on some clauses that serve to build the documents in an appropriate way. These are:
- Payment Allocation: details about the separation between the principal sum and the interest sum to be paid.
- Prepayment: details about the necessity to pay a fee for closing the debt earlier than was stated in the note.
- Severability: This clause serves to keep the promissory note valid even if, for some reason, one of its parts became invalid.
- Conflicting Terms: this clause aims at clarifying the details on the conflicting terms if the latter ones appear.
- Governing Law: if the dispute on the body of the promissory note occurs, this clause clarifies the laws of which state will be used to manage the situation.
This is not the full list of the possible clauses to be used in the promissory notes in New York. However, these ones are widely used.
When the promissory note is built, the details of its’ body are stated clearly in a written form, and it is signed by all parties; this paper becomes an official document, serving to regulate the financial relationships between the side, that gives money and the side, that takes money with the promise to pay them back.
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