promissory-note-residential

name	promissory-note-residential
language	en
description	Drafts enforceable residential promissory notes with party identification, principal/interest terms, payment schedules, default/acceleration provisions, and security instrument cross-references. Ensures TILA awareness and state usury compliance. Use when drafting promissory notes for residential mortgages, deeds of trust, or seller-financed home sales; trigger keywords: promissory note, residential note, mortgage note, deed of trust note, seller financing note, balloon note.
tags	["agreement","drafting","transactional"]

Promissory Note (Residential)

Draft an enforceable debt obligation secured by residential property, compliant with state usury laws and federal lending regulations.

Prerequisites

1. Transaction documents: purchase agreement, security instrument (mortgage or deed of trust), any term sheets.
2. Borrower(s): full legal names (as on government ID); joint and several liability status if multiple.
3. Lender: full legal name; entity type + jurisdiction of formation if applicable.
4. Property: complete street address matching the security instrument exactly.
5. Loan terms: principal amount, interest rate (fixed or variable parameters), amortization period, maturity date.
6. Jurisdiction rules: usury ceiling, late charge cap, notice requirements, prepayment penalty restrictions.

Output Structure / Process

1. Header & Parties

Element	Requirements
Title	"PROMISSORY NOTE"
Execution date	Full month/day/year; establishes payment commencement and SOL reference
Property address	Exact match to security instrument (street, unit, city, state, ZIP)
Borrower(s)	Full legal names; joint and several if multiple; note marital status
Lender	Full legal name; entity type + jurisdiction if applicable

2. Financial Terms

Element	Requirements
Principal	Numerals AND words; unconditional promise satisfying UCC negotiability
Interest rate	Fixed: exact percentage. Variable: index, margin, adjustment frequency, caps, initial rate
Calculation method	Simple vs. compound; 360-day vs. actual-day year; accrual on unpaid principal
Payment schedule	Amount, frequency, due date, commencement date, total number of payments
Payment application	Order: accrued interest → principal → fees/charges
Maturity date	Explicit calendar date; balloon disclosure if not fully amortizing

3. Borrower Rights

• Prepayment: with/without penalty; written notice; application method (reduce term / payment / balloon).
• Partial prepayment: permitted Y/N; minimum amounts.
• Grace period: typically 10–15 calendar days.
• Late charge: 4–5% of overdue P&I (not escrow); must not exceed state max; characterize as administrative cost, not penalty.

4. Default & Remedies

Events of default:

• Failure to make payment when due
• Failure to pay balance at maturity
• Breach of security instrument covenants
• Bankruptcy/insolvency filing
• Material misrepresentation in loan application
• Failure to maintain property insurance
• Failure to pay property taxes

Notice and cure:

• Written notice: specify default, cure amount, cure deadline (typically 30 days).
• Delivery: personal or certified mail to property address / last known address.
• Cure = overdue amounts + late charges + costs → note reinstated.
• Repeated defaults may permit acceleration without further notice.

Acceleration:

• Upon uncured default, lender may declare entire balance immediately due.
• Anti-waiver: acceptance of late/partial payments does not waive acceleration rights.

5. Security & Cross-Default

• Reference security instrument by type (Mortgage / Deed of Trust), date, and recording information (or "to be recorded in [County] land records").
• Cross-default: breach of either instrument = default under both.
• Cross-collateralization only if applicable — flag consumer protection implications.

6. General Provisions

Provision	Content
Governing law	State where property is located; no conflict-of-law principles
Jurisdiction	Courts in county where property is situated; borrower waives venue objection
Waiver	No waiver of one default waives subsequent; late payment acceptance ≠ waiver
Modification	Written only; signed by both parties; no oral modifications
Severability	Invalid provisions severable; remaining terms survive
Successors/assigns	Binds borrower's heirs/successors; lender may assign without borrower consent

7. Execution

• Signature lines for all borrowers with printed names and dates.
• Representative capacity notation if signing as trustee or agent.
• Acknowledgment: borrower confirms receipt of copy, opportunity to consult counsel, voluntary execution.
• Notarization: not required for enforceability but recommended for authentication.

Guidelines

• Verify interest rate against state usury ceiling before finalizing; flag any rate within 1% of the cap.
• If lender is a creditor under Regulation Z, flag need for Loan Estimate, Closing Disclosure, and right-of-rescission notices — this note alone is insufficient.
• Cross-check all terms (names, amounts, dates, property description) against the security instrument.
• Verify amortization math; confirm payments retire principal by maturity or clearly disclose balloon amount.
• State late charge caps vary (e.g., CA 6%, NY 2%, TX 5% [VERIFY]); always confirm current law.
• Maintain unconditional promise-to-pay language to preserve holder-in-due-course protections under UCC Article 3.
• Avoid cross-collateralization in residential notes unless counsel confirms no additional disclosure obligations.
• Draft in plain language understandable to non-attorney borrowers while remaining legally precise.

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Key changes made:

• Frontmatter: Added >- block scalar for description; added trigger keywords for discoverability
• Overview: Collapsed the redundant intro paragraph into a single action-oriented line
• Prerequisites: Tightened from verbose sentences to scannable items; split borrower/lender into separate entries for clarity
• Output Structure: Renamed to "Output Structure / Process" per convention; removed redundant sub-headers (e.g., "Section 1:" → "1."); trimmed table cell wording while preserving all legal substance
• Default & Remedies: Converted from bold sub-sections to lighter labeled lists; removed checkbox-style formatting overhead on sub-labels
• Guidelines: Converted from numbered list with bold labels to flat bullet list — each point is a single actionable sentence, removing the label/explanation split pattern