assignment of promissory note texas

Can You Assign a Promissory Note

“Can you assign a promissory note?” is a request you need to make to someone who promises to pay you a certain amount of money at a later date. 3 min read updated on February 01, 2023

“Can you assign a promissory note?” is a request you need to make to someone who promises to pay you a certain amount of money at a later date. While it is not as formal as a contract, a promissory note is legally binding, meaning that the promisee is entitled to take legal action if the promisor fails to make the specified payment.

What Is a Promissory Note?

A promissory note refers to a written document stating that a certain amount of money will be paid to someone by a specified date. Generally, it is not necessary for the note to be recorded officially. The borrower is required to sign the note, but the lender may choose not to sign it. A promissory note is a legally binding note that is often used between parties who know each other personally, and it is totally customizable.

Using a Promissory Note to Pledge Collateral

Collateral refers to property pledged to ensure that a loan will be repaid. Take the following measures when collateral is pledged with a promissory note:

• If you are the lender, make sure the borrower upholds the terms stated in the promissory note. Also, the interest specified in the note must be legal.
• If you are the borrower, issue the promissory note to the institution or individual that needs it to obtain a loan for you. This should be done with an addendum stating the assignment of your rights or the completion of the assignment paperwork required by the lender.

Theoretically, a lender will only be willing to accept a promissory note as a form of collateral if you have satisfied at least part of the promise stated in the note. This means that you must have already paid back some money in accordance with the terms of your promissory note.

Using an Assignment of Deed of Trust

The purpose of a trust deed investment is to generate a greater return on your money on top of the amount you will otherwise receive from a certificate of deposit or savings account. If you are planning to make these types of investment, it is essential that you know how to use an assignment of deed of trust .

In California and many other states, the repayment of a promissory note is secured with a deed of trust against real property. Essentially, a trust deed investment involves the purchase of a promissory note, which is required to be secured by a deed of trust as part of the transaction.

When you obtain a loan to buy real estate, you will have to use a promissory note. The terms for repaying the loan, including the interest rate and monthly payment amount, will be stated in the promissory note. A deed of trust will be used to ensure that the promissory note will be repaid when it is recorded against the property purchased with the loan.

A lender may sell a promissory note. This usually happens between banks, but it can be done by any person who wishes to buy the promissory note as a form of investment. When a lender sells a promissory note, the deed of trust that secures the note will also be sold with it.

Difference Between Mortgage Assignment and Note Endorsement

When you are applying for a loan to purchase a home, the lender may require you to sign a promissory note and a mortgage or a deed of trust. In the event that your loan is sold to another party, these documents will be transferred to the new owner with an assignment and an endorsement. The new owner will have the right to receive payments and foreclose if you fail to make payments.

In casual conversations, people often use the word “mortgage” to refer to a home loan. A mortgage or a deed of trust is an essential document included as part of the process of securing a home loan. It is a form of security instrument. A promissory note , on the other hand, specifies the details and terms of the loan and obligates the borrower to repay the loan.

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SCUTT LAW PLLC

"you are the center of our universe"℠, call (210) 460-0424 for a free consultation - we fight for the compensation you deserve, promissory notes: a texas commercial paper primer.

Welcome to Scutt Law, PLLC’s primer on promissory notes made in Texas. First, what is a promissory note? A promissory note is a signed paper promising to pay another a certain sum of money. In order to be legitimate and acceptable as a proper promissory note, the writing MUST contain the following elements:

1. UNCONDITIONAL: There cannot be any conditions to payment. For instance, “I promise to pay if it rains on June 15th.” That statement makes the payment conditional on rain on June 15th.

2. PROMISE OR ORDER TO PAY: There must be a written undertaking to pay money that is signed by the person undertaking to pay. For example, “I, John Doe, promise to pay to the order of Jane Doe one thousand dollars.”

3. TO PAY A FIXED AMOUNT OF MONEY: The principal amount due under the promissory note must be fixed. The amount of interest due does not need to be fixed. However, the interest rate must not be unconscionable, or it may violate the Texas Usury Laws, which are state laws that specify the maximum interest rate that can be charged before it becomes unlawful.

4. PAYABLE TO ORDER OR BEARER: The promissory note must be payable to order or to bearer. For instance, “Pay to the order of Jane Doe,” or “I promise to pay to the order of bearer”. A bearer is any person who may present the note to the person who made it (“the maker”) for payment.

5. PAYABLE ON DEMAND OR AT A DEFINITE TIME: The note is payable on demand if it states that it is payable “on demand” or “at sight”, or if it does not state a time for payment. This means that it is payable at the will of the holder of the note. The note is payable at a definite time if it specifies a specific date for payment, or if it states a specific period of time after sight, such as “120 days after presentment for payment”. However, as addressed above, made sure that there are no conditions on payment.

6. DOES NOT STATE ANY UNAUTHORIZED UNDERTAKING OR INSTRUCTIONS: Finally, the Texas Business & Commerce Code states that a promissory note must not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.

Who uses promissory notes? Banks often use them, and people use them in day-to-day transactions (such as when family members or friends loan money to one another that must be repaid). Promissory notes can even be used in Texas as capital contributions to Limited Liability Companies (“LLC”s) by LLC members.

Why must a promissory note contain the elements describe above? Because it is then what is called a “negotiable instrument”. A negotiable instrument allows the holder to transfer that instrument (here, a promissory note) in the same way that cash can be transferred. Therefore, if it is “negotiable”, and adheres strictly to the elements listed above, a promissory is a very useful and powerful instrument. This is because it is a safe and convenient substitute for cash in certain situations.

How is a promissory note a substitute for cash? If the note is transferred to another holder in a special way (if it is “negotiated”), the new holder can enforce the note against the maker of the note, and in that way, it is like cash. The process of negotiation is a topic for another primer, but it is important to understand how a promissory note can become a negotiable instrument in the first place.

If you are interested in having a promissory note drafted, or if you have concerns involving one that has already been executed, you should contact an attorney for advice about your specific situation. It is important to consult an attorney to make sure your rights are protected.

*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

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Texas Promissory Note Templates

In the state of Texas, promissory notes are one way to bind loans between lenders and borrowers. Promissory notes can be secured and unsecured depending on the loan amount and agreement.

With a promissory note template, Texas law recognizes both secured and unsecured promissory notes as stipulated by the Texas Business and Commerce Code § 26.02 of Texas Law .

Texas Secured Promissory Note

Under the finance code in section 302.001, Texas promissory notes can be classified as “secured.” A secured promissory note is a note in which there is an agreement between borrower and lender.

In a secured promissory note Texas form, the borrower agrees to put up a form of collateral to secure the loan.

Depending on the note and what it is gets used for, the security can range from real estate, personal property, or other forms of collateral.

If there is collateral used with the note, then the secured promissory note will need to document the collateral item in detail. If it does not get documented, then the borrower may not need to give up the collateral if the note is defaulted on.

Secured promissory notes are usually detailed and thorough. You can find free Texas promissory note templates, and most will include items such as:

• The date of inception of the note
• The names and addresses of all the parties involved as well as the information of the witness that gives the document validity
• The loan amount and the details of how and when payment will occur
• A detailed description of the collateral put up in the agreement
• Additional clauses that stipulate fees, interest rates, and other terms and conditions of the contract
• Signatures from both parties and that of any cosigners or witnesses

Texas Unsecured Promissory Note

Unlike a secured promissory note, an unsecured promissory note does not involve any collateral. Instead, an unsecured promissory note is an agreement between two individuals exercising their good faith.

Typically, borrowers and lenders will have their relationship as collateral, and this will typically be enough that the note is fulfilled.

In the state of Texas, a promissory note is a legally binding document once both parties have signed it.

Though it does not need to be notarized, there needs to be a witness present in order to give it legal validity.

There are a couple of options available when trying to collect on a promissory note. There can be initial contact made by the borrower, followed by filing a claim in the court system.

In extreme cases, the lender may send the note over to a debt collector, but the fees may vary depending on the service you receive.

Yes. In the state of Texas, most promissory notes have a statute of limitations of four years. The statute of limitations goes into effect on the date the note is due.

In the state of Texas, interest rates in promissory notes are dependent on whether or not the interest rate is stipulated in the agreement in writing. If it is in writing, then the maximum interest rate that can be applied is around 18%.

However, there are some exceptions to the law . If there is no interest rate addressed in writing on the promissory note, then the maximum amount of interest that can be charged is 6%.

Buying and Selling Real Estate Notes

Not as Simple as One Might Think by David J. Willis J.D., LL.M.

Introduction

Investors often buy and sell real estate lien notes, either singly or in a package, a transaction that is customarily effected by a Sale & Assignment of Notes and Liens . This transfer instrument is referred to in this article simply as an assignment.

The idea of buying or selling a note seems simple until one delves into it. Is the assignment to be made “as is” with all faults that may exist in the note and the lien instrument? Will there be representations and warranties made by the parties and, if so, how extensive? How long will they last? Will recourse provisions apply if the note goes into default, and if so what is the recourse mechanism? Will indemnities be included? The closer one looks the more questions arise.

Our focus in this article is on the final assignment instrument signed by the parties at closing of the transfer rather than preliminary agreements that may come before closing.

The Assignment Process

In the case of real estate lien notes, a completed assignment involves not just a transfer of a note but the liens securing payment as well, which is why the assignment instrument is referred to as an assignment of note and liens. Two liens may be involved: the vendor’s lien retained in the deed from the seller to the borrower and the lien granted by a deed of trust.

One must distinguish between an absolute assignment of a note (a permanent transfers to a new owner and holder) versus a collateral assignment (made to a lender as collateral for a loan). Notes may be assigned in either way.

This discussion addresses absolute assignments. Steps in the process are usually: (1) an initial letter of intent or preliminary contract phase when basic terms are agreed to—similar to an earnest money contract for real estate—with “outs” for the prospective buyer; (2) a due-diligence or inspection period when a prospective buyer studies and evaluates the note (or package of notes) along with the lien instrument(s) and supporting documentation; (3) a cure period for objections, if any, raised by the buyer; (4) a closing document negotiation phase in which the terms of the final assignment instrument are hammered out and agreed to; and (5) a closing where a final sale and assignment of note and liens is executed, the purchase price paid, and the original note and loan file are delivered to the buyer-assignee.

BUSINESS & COMMERCE CODE

Negotiable instruments.

A properly written and endorsed real estate lien note is a negotiable instrument for purposes of Business & Commerce Code Section 3.201 et seq. Specific requirements of negotiability are listed in Section 3.104:

Bus. & Com. Code Sec. 3.104(a). NEGOTIABLE INSTRUMENT. Except as provided in Subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain: (A) an undertaking or power to give, maintain, or protect collateral to secure payment; (B) an authorization or power to the holder to confess judgment or realize on or dispose of collateral; or (C) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

A real estate note that does not qualify as a negotiable instrument may still be valid and enforceable, and it may still be sold and assigned, but common law rules relating to the assignment of contracts will apply—the negotiable instrument rules of the Business & Commerce Code will not.

The resale value of a note that is non-negotiable is likely to be discounted.

Statutory Warranties

Business & Commerce Code Section 3.416 provides minimal warranties for notes that are negotiable instruments. These are automatically in place unless the assignment instrument disclaims them:

Bus. & Com. Code Sec. 3.416(a). TRANSFER WARRANTIES. A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that:

(1) the warrantor is a person entitled to enforce the instrument;

(2) all signatures on the instrument are authentic and authorized;

(3) the instrument has not been altered;

(4) the instrument is not subject to a defense or claim in recoupment of any party that can be asserted against the warrantor;

(5) the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker. . . .

Unless contradicted or disclaimed in the assignment, these statutory warranties co-exist with contractual representations and warranties of the parties (discussed below).

DUE DILIGENCE BY BUYER-ASSIGNEE

Are the note and lien valid.

Determining the validity and enforceability of a real estate note and the lien(s) securing it is the core due-diligence task of any prospective buyer—who should obtain the whole loan file not just a copy of the note itself. A complete file will include (at least) the note; a copy of a recorded deed of trust; a copy of a recorded deed into the name of the property owner (the borrower); and a payment history. Even if only copies are being reviewed, the original note should exist and be available for inspection.

For a note to be valid, there must be consideration extended—money that is actually loaned. Hughes v. Belman , 239 S.W.2d 717, 720 (Tex.App.—Austin 1951, writ ref’d n.r.e.); and Bus. & Com. Code Sec. 3.303.

Generally, a note offered for sale should:

(1) be correct as to all material information including clearly identifying borrower and lender as well as the security property; (2) recite an unconditional promise to pay a sum-certain debt (and the numerical portion must match the written portion); (3) contain authentic signatures of all debtors and be dated; (4) provide clear terms of repayment; (5) be secured by a valid, recorded, and unreleased deed of trust; (6) contain the signature of both spouses if the property is homestead; (7) not contain any provisions that are illegal such as requiring usurious interest; (8) not be in default (monetary of technical) or the subject of any dispute with the borrower; (9) not be in litigation or bankruptcy whether existing, threatened, or anticipated; (10) not be the subject of any interest or claim by third parties; and (11) not have been previously sold or transferred in whole or in part.

This is a partial list. Sensible note purchasers will also want to perform minimal due diligence as to the value and condition of the security property since such factors may influence future note payment and performance. Does the property exist? Is it owner-occupied or occupied by renters? Is it in a state of good repair or is it underwater as a result of a recent flood?

If the parties to the note are registered entities (LLCs, corporations, or limited partnerships) it is important to verify that they are in good standing with the Secretary of State and the Texas Comptroller. If not, they do not have the legal capacity to do business, whether it is selling or buying notes or anything else.

All of the foregoing factors affect the quality of the note or notes being considered—and quality affects price.

The importance of thorough due diligence cannot be over-emphasized. A prospective buyer should engage an experienced attorney to assist in determining the validity and enforceability of the loan documents before substantial funds are committed.

Even when a note is being transferred entirely “as is” a prospective buyer-assignee should insist on an adequate due diligence/inspection period before closing.

REPRESENTATIONS AND WARRANTIES

Beyond statutory minimum warranties.

A well-drafted assignment may (and should) go beyond minimum statutory warranties to include contractual representations and warranties by the parties. It is possible for the assignment to include extensive reps and warranties, limited reps and warranties, or no reps and warranties at all—in which case the assignment is made “as is” and almost always without recourse. These terms should be expressly stated in the assignment instrument.

The goal of the seller-assignor is to minimize ongoing liability by limiting the number of reps and warranties. The buyer-assignee will instead prefer a longer list of assurances concerning note quality and completeness of the loan file.

Core representations and warranties of the seller-assignor include assurances that the note and lien(s) contain correct information and are legally valid and enforceable; that they are secured by a lawful vendor’s lien retained in a recorded general or special warranty deed plus a valid first-lien recorded deed of trust against the security property; that payments are current and there is no threat of monetary or technical default; that no adverse litigation is pending or threatened; and that the assignor is the sole owner and holder of the debt with power to transfer the note and liens.

There may be many more seller reps and warranties that a careful buyer will want to include. An example: if the seller-assignor was the original payee on a real estate note, and the note arose from seller financing, the buyer-assignee should want a specific warranty that the SAFE Act and Dodd Frank were fully complied with in the course of the original transaction.

There is the question of how long reps and warranties will survive closing (if at all)—30 days? 90 days? Forever?

Obtaining adequate reps and warranties from the seller-assignor does not substitute for thorough due diligence by a prospective buyer-assignee.

OTHER CLAUSES IN THE ASSIGNMENT

Assignments made “as is”.

What if the transaction is entirely “as is,” with no reps and warranties? There is certainly a market for this although the sales price of the note(s) will be discounted as a result. The key element in the assignment (for the seller-assignor) will be an effective “as is” clause similar to ones found in earnest money contracts and warranty deeds. Drafting these clauses can be tricky. Simplistic, one-liner “as is” clauses will not suffice since the seller-assignor needs not only to disclaim assurances regarding the note being transferred but also any reps or warranties concerning the condition and value of the security property.

Disclosure by the Seller-Assignor

Notwithstanding that an assignment is being made and accepted “as is,” a buyer should seek to obtain an agreement by the seller to make full disclosure of material facts. A sample clause might be: Assignor covenants and agrees to fully disclose to Assignee, prior to expiration of the inspection period, any and all material facts, conditions, and circumstances pertaining to the note(s), the lien(s), and the security property that could reasonably be expected to affect the Assignee’s decision to buy or not buy, even if this assignment is agreed to be “as is,”in present condition with all faults and without recourse.

Recourse by the Buyer-Assignee

Notes are sold with or without recourse by the buyer-assignee against the seller-assignor. Recourse comes in three varieties: none, full, or limited.

No recourse means what it says: if the borrower defaults then the buyer-assignee is stuck with a non-performing note (a near-worthless asset) and is solely responsible for pursuing the debtor and foreclosing on the security property.

Full recourse means that the buyer-assignee gets to give the note back to the seller-assignor if the debtor defaults. One of two things generally happen: (1) the buyer-assignee gets a credit or refund or (2) the buyer-assignee can substitute another note that is current and performing. There are other variations.

Limited recourse is, contractually speaking, all over the place. There are as many different provisions for limited recourse as there are creative attorneys to write them. Limited recourse provisions may state that there will be some sharing of effort and expense in collection or foreclosure, possibly with a reckoning after foreclosure sale of the security property. Remedies may be different when a batch of notes is involved: for example, if 100 notes are sold, the assignment might provide that the first 10 problematic notes will be full recourse, but the remaining 90 will not. In either case, there may be a hard limit on the total monetary amount of recourse available against the seller-assignor.

The availability of recourse—whether none, full, or limited—may also be contained within a specific time period. The availability of recourse is seldom indefinite.

Indemnity Provisions

If possible, the seller-assignor will want an indemnity clause holding him harmless against issues that may later arise in connection with the legality, enforceability, or collectability of the note. As with sellers of anything, the goal is no comebacks after closing.

Note buyers, on the other hand, resist not only taking the heat for defects in what they are purchasing but also paying the cost of defending against lawsuits arising from those defects. As with so many issues in real estate it comes down to quality and price. A seller-assignor may be able to get an indemnity provision included but it may be costly when it comes to the assignment sales price.

Indemnity provisions, although important, may be overrated since they are not self-executing. After all, the terms of an assignment can do nothing to prevent a borrower from suing both the seller-assignor and the buyer-assignee at some later time, resulting in inescapable up-front defense costs. One party to the assignment is left with a claim against the other based on the indemnity provision, often resulting in a second lawsuit.

As is the case with many other types of contracts, it is often beneficial to include a mandatory mediation clause in the assignment.

Drafting Considerations Generally

An assignment of note and lien(s) should be a comprehensive document. (If it is one page or less, something is amiss.) All obligations should be express. Nothing should be implied. No one should be allowed to assume anything or rely on anything unless expressly stated in writing. Oral statements should be disclaimed. A poorly-written assignment that involves unwritten assumptions and reliance on oral statements can easily form the basis for future litigation.

The foregoing discussion is by no means intended to be an exhaustive list of possible provisions that can be included in an assignment of note and liens. (Such documents can easily run 10 to 20 pages.) It merely hits the highlights.

CLOSING OF THE ASSIGNMENT

Endorsement and delivery of the note.

The note itself should be marked or stamped appropriately and the endorsement (or indorsement as it is referred to in the Business & Commerce Code) signed by the seller-assignor. The endorsement should include wording appropriate to the circumstances such as “payable to assignee without representations, warranties, or recourse” and would include the effective date.

Where does one place the endorsement? “For an instrument to be negotiable, indorsements must be written on the instrument or on a paper so firmly affixed thereto as to become a part thereof [sometimes called an allonge ]. An allonge is a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself.” Failure to properly endorse a note when it is transferred may impair its negotiability, resulting in the recipient being a mere transferee rather than having the superior status of a holder in due course [see Bus. & Com. Code Sec. 3.302].” Federal Fin. Co. v. Delgado, 1 S.W.3d 181, 185-86 (Tex.App.—Corpus Christi 1999, no pet.).

The original note(s) should be delivered to the buyer-assignee at closing.

Execution and Recording of the Assignment

Both the seller-assignor and the buyer-assignee should sign the assignment in order to indicate mutual assent to its terms and conditions. A properly-drafted assignment is not merely a unilateral transfer but represents a complex contract between the parties. The assigning party’s signature is not enough.

It is usually advisable for the buyer-assignee to record the assignment in the real property records of the county where the security property is located, so the assignment should be prepared in recordable form.

INVESTOR STRATEGIES

Notes are financial assets and their acquisition can be a part of an investor’s long-term buy-and-hold strategy. Like rents, a portfolio of mixed-age performing notes can produce a stream of income; however, unlike real property, there is no underlying equity that appreciates over time. In fact, the value of note assets depreciates so a stable portfolio requires continual replenishment. As notes age and mature new notes must be acquired in their stead if the income stream is to be maintained.

It is, of course, possible to acquire notes for other reasons. One aggressive strategy is to buy a secured note in default with the specific intention of foreclosing on the security property. A long-term hold is not the objective; acquiring the property is the objective. This scenario contemplates more of an “as is” approach to the note since its price is likely to be heavily discounted. In such cases, thorough due diligence is necessary in order to ensure that both the note and deed of trust are valid and enforceable with no obvious defenses available to the debtor.

Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.

Copyright © 2023 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com .

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Promissory Note Transfer Contract

Jump to section.

A promissory note transfer contract refers to a legally binding agreement that facilitates a transfer of rights and obligations related to a borrower or lender. It is a written report that promises to pay money to a chosen event at a decided destiny date or upon request. Let us know more about the contract, its key components, and its importance.

Essential Elements of a Promissory Note Transfer Contract

To apprehend the transfer procedure higher, it's important to familiarize oneself with the important components of a promissory document. These components include:

• The principal amount and interest rate
• Maturity date and repayment terms
• Default provisions and remedies
• Signatures and notarization

Importance of Promissory Note Transfer Contracts

Transferring ownership of a promissory note without a formal contract can lead to confusion and potential legal issues. The importance of a promissory note transfer contract lies in the following:

• Ensuring a legally valid transfer
• Establishing clarity and certainty for all parties involved
• Protecting the interests of the transferor and transferee
• Preserving the enforceability of the promissory note

Benefits of a Promissory Note Transfer Contract

A Promissory Note Transfer Contract offers several benefits to the transferor and transferee involved in the transfer process. Some key benefits include:

• Legal Validity: Having a transfer contract in place, the transfer of ownership rights and obligations associated with the promissory note is legally recognized and enforceable.
• Clarity and Certainty: The transfer contract establishes clear terms and conditions , ensuring both parties understand their rights, obligations, and responsibilities.
• Risk Mitigation: Transfer contract helps mitigate potential risks and uncertainties by addressing warranties, representations, and disclosures related to the promissory note, protecting both parties from future disputes.
• Asset Protection : The transfer contract safeguards the transferor and transferee's interests by providing a legal framework to protect the promissory note from third-party claims or encumbrances.
• Smooth Transaction Process: A transfer contract streamlines the process by providing a roadmap and necessary procedures to be followed, minimizing potential delays or misunderstandings.
• Enforceability: In the event of default or non-compliance, the transfer contract enables the injured party to seek legal remedies and enforce the terms of the promissory note.
• Preservation of Rights: The transfer contract ensures that the transferee obtains all rights and privileges associated with the promissory note, including interest payments, principal repayments, and other benefits.
• Regulatory Compliance: A transfer contract helps ensure compliance with applicable laws, regulations, and contractual obligations that may govern the transfer of promissory notes.
• Confidence and Trust : By formalizing the transfer procedure, both parties can trust the transaction, understanding that their interests are covered, and the switch is legally sound.
• Documentation and Record-Keeping: A transfer contract is an essential document that provides evidence of the transfer, making it easier to maintain accurate records and facilitate future reference or audits.

Steps in the Transfer of a Promissory Note Transfer Contract

The transfer process of a promissory note typically involves the following steps:

• Review the promissory note’s obligations and terms
• Verify the validity and authenticity of the note
• Assess any existing encumbrances or claims on note
• Determine the rights of the transferor and transferee
• Define the terms of the transfer, including consideration and effective date
• Ensure compliance with applicable laws and regulations
• Seek necessary consent from relevant parties, such as guarantors or co-signers
• Obtain any required approvals from regulatory bodies or lenders
• Sign the transfer contract in the presence of witnesses, if necessary
• Deliver the executed contract to all parties involved
• Update official records and notify relevant stakeholders

Key Considerations in a Promissory Note Transfer Contract

There are many factors which both the transferor and transferee must know and consider during a promissory note transfer, such as:

Transferor Considerations

• Legal ownership and authority to transfer the promissory note
• Financial stability and creditworthiness of the transferee
• Any restrictions or limitations on the note's transferability

Transferee Considerations

• Authenticity and validity of the promissory note
• The creditworthiness of the transferor to repay
• Existing encumbrances or claims on the note

Legal Impact of a Promissory Note Transfer Contract

A promissory note transfer contract carries various legal implications, including:

• Compliance with applicable laws and regulations
• Clear establishment of rights and obligations for both parties
• Mitigation of risks and protection against potential disputes
• Enhanced enforceability of the promissory note in case of default

Vital Steps in Hiring a Lawyer for a Promissory Note Transfer Contract

Approaching an attorney for assistance with a promissory note transfer contract is highly recommended to ensure a smooth and legally sound transfer process. Here are some key steps to consider when seeking legal guidance:

• Research and Selection: Conduct thorough research to identify attorneys with expertise in contract law, specifically promissory note transfers. Look for attorneys who have experience in drafting and reviewing similar contracts.
• Initial Consultation: Schedule an initial consultation with the selected attorney to discuss your specific needs and the details of the promissory note transfer. Ask about the attorney's experience, fees, and approach to handling such cases during the consultation phase.
• Documentation and Information Gathering: Gather all relevant documents related to the promissory note, including the original note, any amendments, and the supporting agreements. Provide the lawyer with all necessary files associated with the transferor, transferee, phrases of the transfer, and any other pertinent details.
• Contract Drafting and Review: The attorney will draft the promissory note transfer contract based on the information provided. They will ensure that the settlement appropriately displays the intentions of both events, includes important provisions for a legitimate switch, and complies with relevant legal guidelines and regulations. Once drafted, the legal professional will overview the settlement with you, explaining the terms and addressing any questions or issues you can have.
• Negotiation and Amendments: If required, the attorney can assist in negotiating the terms of the transfer with the other party involved. They will work to protect your interests and ensure that the contract reflects mutually agreeable terms. Any amendments or revisions to the contract will be made in consultation with the attorney.
• Legal Advice and Guidance: Throughout the method, the lawyer will offer legal advice and steering, assisting you in apprehending the implications of the switch, potential dangers, and how to guard your rights. They will ensure that the contract complies with relevant laws and regulations and advise on any additional steps or considerations to be taken.
• Execution and Notarization: Once the final version of the promissory note transfer contract is agreed upon, the attorney will assist in executing the contract. Depending on the jurisdiction and specific requirements, they may also advise on the need for notarization or witnesses.
• Ongoing Support: Besides drafting and executing the contract, the attorney can provide ongoing support throughout the transfer process. They can address post-transfer issues, assist with record-keeping, and ensure compliance with contractual obligations.

Key Terms for Promissory Note Transfer Contracts

• Transferor: The party currently holding ownership rights of the promissory note and intending to transfer those rights to another party.
• Transferee: The party receiving the ownership rights and obligations of the promissory note through the transfer process.
• Consideration: The agreed-upon value, such as money or other assets, exchanged between the transferor and transferee as part of the promissory note transfer.
• Assignment: The process of legally transferring the rights and obligations associated with a promissory note from the transferor to the transferee.
• Indemnification: A provision inside the transfer settlement outlining the responsibilities of every transfer event to compensate the alternative in case of any losses, damages, or liabilities springing up from the same.

Final Thoughts on Promissory Note Transfer Contracts

Transferring ownership of a promissory note requires careful consideration and establishing a promissory note transfer contract. Understanding the key additives of a promissory note, spotting the signs of a transfer contract, following the step-through-step procedure, thinking about the interests of each the transferor and transferee, and appreciating the legal implications and advantages of a promissory transfer agreement are important for better success. Seeking legal guidance is always recommended to ensure a smooth and legally sound transfer process.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Need help with a Promissory Note Transfer Contract?

Meet some of our promissory note transfer contract lawyers.

Benjamin E.

Benjamin is an attorney specializing in Business, Intellectual Property, Employment and Real Estate.

Advised startups and established corporations on a wide range of commercial and corporate matters, including VC funding, technology law, and M&A. Commercial and Corporate Matters • Advised companies on commercial and corporate matters and drafted corporate documents and commercial agreements—including but not limited to —Convertible Note, SAFE, Promissory Note, Terms and Conditions, SaaS Agreement, Employment Agreement, Contractor Agreement, Joint Venture Agreement, Stock Purchase Agreement, Asset Purchase Agreement, Shareholders Agreement, Partnership Agreement, Franchise Agreement, License Agreement, and Financing Agreement. • Drafted and revised internal regulations of joint venture companies (board of directors, employment, office organization, discretional duty, internal control, accounting, fund management, etc.) • Advised JVs on corporate structuring and other legal matters • Advised startups on VC funding Employment Matters • Drafted a wide range of employment agreements, including dental associate agreements, physician employment agreements, startup employment agreements, and executive employment agreements. • Advised clients on complex employment law matters and drafted employment agreements, dispute settlement agreements, and severance agreements. General Counsel • As outside general counsel, I advised startups on ICOs, securities law, business licenses, regulatory compliance, and other commercial and corporate matters. • Drafted or analyzed coin or token sale agreements for global ICOs. • Assisted clients with corporate formations, including filing incorporation documents and foreign corporation registrations, drafting operating and partnership agreements, and creating articles of incorporation and bylaws. Dispute Resolution • Conducted legal research, and document review, and drafted pleadings, motions, and other trial documents. • Advised the client on strategic approaches to discovery proceedings and settlement negotiation. • Advised clients on employment dispute settlements.

Skilled in the details of complex corporate transactions, I have 15 years experience working with entrepreneurs and businesses to plan and grow for the future. Clients trust me because of the practical guided advice I provide. No deal is too small or complex for me to handle.

Bruce Burk practice is in the area of small business, labor and employment, contracts, real estate and civil litigation. Bruce has litigated over 40 trials as well as many appeals. He prioritizes client communication and satisfaction as well as delivering high quality work product.

Attorney Cory Barack specializes in business, real estate, probate, and energy law. He can help you with oil/gas leases, easements, property sales, drafting contracts and wills, setting up companies, and resolving disputes. He is licensed to practice law in Ohio and is located in Eastern Ohio.

A commercial contracts lawyer with over 25 years of experience (both at large law firms and in-house as general counsel of a public company)

Brittany B.

Brittany advises startups and emerging and public companies at all stages of growth, with focuses on formation and corporate governance matters, securities, venture capital financings, M&A and other strategic transactions, commercial contracts and general corporate counseling. Brittany represents clients across a broad spectrum of industries, including technology, automotive, mobility, digital health, consumer products and manufacturing.

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North Texas Legal News

Enforcing Promissory Notes in Texas

A seller’s creative use of a promissory note recently backfired when a Texas Court of Appeals found that the seller failed to show that it actually lent the money described in the promissory note. In this case, a purchaser of goods owed the seller $69,000 for the goods it had ordered. The seller refused to release the goods unless the purchaser signed a promissory note for the amount of the goods.

Promissory notes are often used to document loans. In such cases, a lender (a bank, family friend, etc.) writes a document in which the recipient of the money confirms that they are bound to repay a certain sum of money to the lender under specific terms. Not surprisingly, many borrowers default on their promissory notes, in which case lenders are forced to sue to enforce the notes.

PRACTICAL TIP: When lending money to a business, it is always a good idea to require a personal guarantee from the owner of the business, who can be personally liable for the repayment of the loan and be added as a defendant in an enforcement lawsuit.

To prevail on its claim to collect on a promissory note , a lender must prove: (1) the existence of the promissory note in question, (2) that the alleged recipient of the funds signed the note, (3) that the lender is the owner or holder of the note, and (4) that a certain balance is due and owing on the note.

This past month, a Texas Court of Appeals ruled that a party seeking to enforce its promissory could not do so because it could not prove that it actually lent the money to the borrower, hence, that a balance of the note was due and owing. The note’s language was key:

As of the 27th day of February, 2018, hereinafter known as the “Start Date”, U[S]-U[K] International Supply Group, LLC, hereinafter known as the “Borrower”, has received and promises to pay back HTS Services, Inc., hereinafter known as the “Lender,” the principal sum of Sixty-Nine Thousand Five Hundred Eighty-One and 00/100 US Dollars ($69,581.00) with interest accruing on the unpaid balance at a rate of five percent (5%) per annum, pursuant to the terms of this Promissory Note, hereinafter known as the “Note[.]”

Since the borrower testified at trial that he never received any money from the lender, and, the lender, apparently, could not prove otherwise, the trial court found in favor of the borrower, and the Court of Appeals affirmed. Specifically, the borrower testified that he was forced to sign the promissory note to secure the release of the goods that he had ordered from the lender and that the lender was holding for him.

BOTTOM LINE: While the lender’s desire to have a promissory note from the borrower in this situation is understandable, different language in the promissory note or a different contractual arrangement to document the debt would have been a better solution.

Leiza Dolghih is the founder of Dolghih Law Group PLLC.  She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at [email protected] or (214) 531-2403.

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Assignment of Deed of Trust (Commercial Real Estate Loan) (TX) | Practical Law

Assignment of Deed of Trust (Commercial Real Estate Loan) (TX)

Practical law standard document w-035-0853  (approx. 18 pages).

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