A borrower's written, signed promise to repay a debt, serving as evidence of the loan obligation.
Why Promissory Note matters on the exam
This term belongs to Financing. The questions below are real items from Freehold's bank that use it - each one cites its source.
Exam questions using Promissory Note
Every Freehold question shows why the right answer is right — and cites its source.
In a real estate loan transaction, the promissory note serves as:
The borrower's personal promise and evidence of the debt
The document that pledges the property as collateral
The instrument that transfers title to the lender
The insurance policy protecting the lender from default
Show answer & explanation
The borrower's personal promise and evidence of the debt — The promissory note is the borrower's written promise to repay the debt on stated terms, making it the evidence of the debt itself. The mortgage or deed of trust separately pledges the property as security.
A promissory note is best classified as a negotiable instrument because it:
Must be recorded with the county before it becomes a legally valid instrument
Creates a lien against the real property described in the accompanying security instrument
Can be freely transferred or endorsed to another party who may then enforce payment
Requires the signatures of at least two witnesses before it becomes enforceable in court
Show answer & explanation
Can be freely transferred or endorsed to another party who may then enforce payment — Negotiability means the note can be transferred by endorsement or delivery, allowing a holder in due course to collect payment; the mortgage or deed of trust, not the note, creates the lien.
Source: PSI National Real Estate Exam Content Outline §4 Financing
A holder in due course who acquires a promissory note in good faith, for value, before maturity generally:
Takes the note subject to each and every one of the maker's personal defenses against the original payee
Cannot enforce the note without the mortgage itself
Automatically becomes the trustee under the deed of trust
Takes the note free of most personal defenses the maker could raise against the original payee
Show answer & explanation
Takes the note free of most personal defenses the maker could raise against the original payee — Holder in due course status protects a good-faith purchaser of a negotiable note from personal defenses, such as fraud in the inducement, that the maker could raise against the original payee.
Source: PSI National Real Estate Exam Content Outline §4 Financing
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