Does your promissory note have fatal errors?
What Are The Fatal Flaws?
• Lack of Enforceability
• Lack of Collectability
• Lack of Marketability
This article alerts note buyers and note investors that it is important to use experienced, professionals, not do-it-yourself helpers. Inexperience and lack of understanding of the financial circumstances surrounding the note's inception will lead to flaws and deficiencies in the enforceability, collectability and marketability of the note.
Shortcuts (Penny Wise and Pound Foolish)
Not properly tailoring the loan documents to fit the specific circumstances of the parties, and the market place, will cause negative consequences. The most important note factor is its collectability. Winning a judgment in court and not recovering the investment is not a win, it is a loss.
Tricked By Appearances
Many promissory notes and mortgage notes appear to be “good on their face” when in fact they lack the necessary elements that make them “good and collectable”. Many notes are drafted with the primary focus of being enforceable in a court of law. But, overlooked are the elements that cause risks of loss-collectability and marketability. It must be marketable and collectable to be a safe investment.
Most Private Money Notes Are Flawed – Some Are Worthless
As a licensed real estate broker specializing in promissory notes and mortgage notes over a 35 year period I can tell you that a high percentage of the notes I have examined are flawed and defective. As an appraiser of notes for estates and probates, divorce settlements, partnership dissolutions, and estate planning purposes, I can tell you that most notes have flaws and deficiencies that could have been easily avoided. I have appraised $ 2 million notes for $ 50,000 (or less) because they had fundamental flaws that could have been avoided.
The note drafter must acquaint himself with the personal and financial positions of all the parties to the transaction, and with their future financial needs. It is not possible to draft the promissory note or mortgage note documents properly by using “ready-made”
(fill in the blanks) promissory note forms and ready-made mortgage forms. These important legal documents must be tailor made to fit the needs of the parties to the transaction. A “one size fits all” form does not do the job.
Preparing Note Documents Should Not Be “On the Job Training”
Ignorance and inexperience are very costly. On the job training using your life savings, or your retirement nest-egg is not the intelligent thing to do. Get experienced professional help to protect your financial health. Obtaining the proper guidance is not an expense; it's an investment, its insurance that protects your financial assets.
If you understand the need for car insurance, homeowner's insurance and medical insurance it should be easy to understand the need for “financial insurance”.
Summary
Avoid financial pain and loss. Ignorance, inexperience, misunderstandings and cutting corners are to be avoided. Improper drafting of promissory note and mortgage note documents causes unnecessary financial pain and suffering.
