Typically drafted at the same time as the Deed of Trust, the Texas Real Estate Lien Note is a one-way agreement in which the signer makes a promise to pay someone a specific sum of money at a specific time. This article will discuss the different elements and sections of a Texas Lien Note.
The Elements of the Lien Note
Included in a Real Estate Lien Note are the following three sections: The name of the person making the Note, the payee, and the note terms, which include the amount, the interest rate, the number of payments, and any additional discretionary clauses. The Grantor in the Deed of Trust is also the Maker/Borrower/Obligor in a Texas Lien Note. Additionally, if the purpose of the Note is financing the purchase of real estate, the Grantee in the Deed is the same as Maker/Borrower/Obligor in the Note and the Grantor in the Deed of Trust. Other important elements included in the Note are the promise to pay, the debtor’s signature, the amount owed and interest rate, as well as how the money is payable, by when, and to whom. The Note includes interest and is secured by a Deed of Trust.
Amortization
A Note is amortized when payments occur in regular installments, usually monthly. Payments include both principal and interest, which is figured based on the balance of the principal. The amount of interest is determined by the amount of the principal and decreases each month in a fully amortized loan. The maturity date in a note is the date the note terminates. If a buyer has a 15-year mortgage, for example, the periodic payments toward that mortgage will result in its maturing, or being repaid, in 15 years. Because a Note must amortize by its maturity date, an amortization schedule is helpful in calculating principal and interest. A Lien Note may or may not amortize, however. Some Notes, for example, pay only toward interest and not toward principal.
Other Terms to Know
A Balloon Note is one in which the payments do not fully amortize the value of the Note before its due date. When that happens, the principal sum (the balloon) is due at maturity. Notes paid off before the maturity date can be charged a Prepayment Penalty, usually a percentage of the principal (although in Texas, the practice is not typical, and most notes may be prepaid without penalty). An Interest Only Note is one where the periodic payments are toward interest only. The principal amount is repaid in one payment.
Real Property Sales
The Real Estate Lien Note is typically used in conjunction with a Deed of Trust and Warranty Deed with a Vendor’s Lien. The three documents comprise a standard package for a typical financed sale of real estate in Texas.
Given the complexities, penalties, and legal implications of a Real Estate Lien Note, hiring a qualified real estate lawyer is crucial to a successful transaction.
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