Have you ever wondered what makes the promissory note on your home enforceable? If you wonder what gives the bank the power to foreclose on your property if you don’t pay your mortgage, the secret is the lien that is attached to the note. The lien is the document that creates the ability for the bank to take possession of your home in the event that you stop paying your mortgage.
Signing your promissory note
At the closing on your home, where you sign all the papers that transfer ownership, there were many papers that you signed. The promissory note was just one of those documents. A promissory note is a legally binding document that indicates how much money you borrowed. The promissory note also indicates how much money the home is worth and the terms under which you will repay the debt. This document spells out the amount of payments you will pay and the amount of each payment. You can think of this paper as a promise that the buyer will return the money the bank has lent out.
Understanding the lien that is attached to the promissory note
Let’s say you could not, for any given reason, pay back your debt to the bank. Without the lien, the promissory note would be merely an unsecured loan that would not be given much consideration by a bankruptcy court.
However, a lien, is a significant advantage for the bank. A lien is like an agreement between the bank and the buyer that allows the bank to hold the papers to the home until the debt is paid. The home is used as collateral for the amount of money borrowed to purchase the home. You, as the homeowner, still own the home. However, the bank is listed as a lienholder so that in the event you do not pay the loan back, the bank can take your home.
Navigating through complex paperwork is difficult. You need to be sure you are singing valid documents that are binding yourself to the home you wish to purchase. If you have questions about promissory notes, liens or any of our services at Elite Real Estate Group in Amarillo, call us today at (806) 337-0883. You can also connect with us via email by clicking on Contact Us. Be sure to view our listings to see the homes we currently have available in your area.