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Seller Financing / Promissory Note Attorneys in Austin, Texas
The Daves Law Firm represents sellers who seek to enter into “owner-financed” arrangements with prospective buyers. As a seller and lender, you need proper legal documents to protect your investment and ensure collection in the event of a default by the buyer.
If you plan to sell property under an owner-financed arrangement, contact the Daves Law Firm to speak with one of our attorneys.
Legal Documents Necessary for Seller Financing
As a seller in a seller-financed sale you need to have certain documents, namely a Promissory Note and a Deed of Trust.
What is a Promissory Note?
The Promissory Note is an agreement containing an express and absolute promise of the signer (buyer) to pay to you (seller) a definite sum of money at a specified date or on demand. A Promissory Note usually provides for interest and, concerning real property, is secured by a deed of trust. A Note contains: a promise to pay, the signature of the Debtor, the amount owing and the name(s) of the person(s) to whom the debt is owed, the date due, the rate of interest and how it is payable. The Note may or may not amortize.
What is Amortization?
Amortization is payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments. A Note having equal payments (usually monthly). Interest is figured on the declining principal balance. As the principal decreases, interest also decreases applying more of each periodic payment to principal.
What is a balloon note?
A Balloon Note calls for periodic payments which are insufficient to fully amortize the face amount of the Note prior to Maturity, so that a principal sum known as the “balloon” is due at maturity.
What is the “Due on Sale” clause?
A clause in a Deed of Trust and Note allowing the Note Holder to call a Note due if the real property acting as security is sold. This is to prevent the assumption of the debt by a stranger. This is an Optional Clause which must be contracted for. Almost all institutional Notes and Deeds of Trust will contain a due on sale clause.
What is a deed of trust and how does it differ from a mortgage?
In Texas, any agreement creating a security interest in real property as an incident of a debt constitutes a mortgage. Thus, even though a trust deed may purport to convey title to a trustee with conditions of trust, such a transfer will nevertheless be treated as a mortgage. Thus, a trust deed is in legal effect a mortgage with a power of sale. Unlike a deed which conveys real estate, a mortgage or deed of trust does not dispose of the title to land, but only operates as security for a debt.
Who are the Parties to a deed of trust?
Grantor
The grantor is the person (buyer) granting the security interest in real property as evidenced by the Deed of Trust. It is easy to get confused here since the Grantor in the deed of trust is the same person as the Grantee in the deed! In a deed of trust, the grantor is the person who purchases the land in question. (buyer).
Grantee
The grantee of a deed of trust is the person who benefits from the granting of the security interest in land which is granted by the deed of trust. The grantee is also sometimes called the Beneficiary.
Beneficiary
The person who benefits from the deed of trust—-this is the name of the lender.
Trustee
The trustee is a person named by the grantor of a deed of trust to represent both the grantor and the grantee/beneficiary in the event of a default under a deed of trust or the note securing the deed of trust. This person might be called on to foreclose the property in the event of a default. You must name someone. However, the beneficiary/note holder always has the right to select a substitute trustee at the time of the a foreclosure so the actual party named is not that important. Typically the lender names the Trustee, usually the drafting attorney.
What is a Release of Lien?
When a deed of trust is paid off, or when you wish to remove (release) a lien from property, you use a release of lien. In title company jargon this is a ROL . When a Note secured by a Deed of Trust is paid off, the holder of the Note signs a document called a Release of Lien. This Release of Lien instrument describes the Note on which the Deed of Trust secures, describes the land being released, and states the recording information of the deed of trust. If the Note is not being paid in full and only a portion of the land is being released from the deed of trust lien, the release would be a Partial Release of Lien.