Promissory Note
Creative FinanceA promissory note is the written, unconditional promise by a borrower to repay a lender a specific sum of money under agreed-upon terms. In creative finance it is the central document: you sign it, the seller holds it, and it defines every material term of the debt. It is the “IOU” elevated to a legally enforceable contract.
How it works. The promissory note spells out the principal amount, the interest rate (if any), the payment schedule (monthly, quarterly, or balloon), the maturity date, the late-payment penalties, and what constitutes default. It is signed by the buyer and held by the seller. Alongside the promissory note sits a security instrument — a mortgage or deed of trust — that pledges the asset as collateral. The note is the debt; the mortgage is the lien.
A promissory note is a negotiable instrument. The seller can sell it to a note buyer for a lump sum — taking a discount on the remaining balance in exchange for immediate cash. This is called “selling the note” or “note discounting,” and it is how sellers who later decide they want cash can exit without undoing the deal.
Key terms every note should include: principal, interest rate, payment amount, payment due date, maturity date, prepayment terms (if any), late fee structure, default definition, and remedies. Use an experienced real estate attorney to draft or review every note you sign. For the full deal structure, see 100% seller financing.