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paying off loans with promissory note

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jparkh81
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paying off loans with promissory note  Reply with quote  

I've been seeing information online about our ability to create a promissory note to pay off a debt. I'm not completely sure how this works but supposedly if you monetize the note by turning it into a negotiable instrument the banks can sell or trade the note for the full value. They site laws and things like UCC1, UCC3, 12 USC 95(a)(2), 12 USC 95(a)(2), 12 USC 95(a)(2) and so on. I am looking for an honest bank executive or someone with expertise in this area to tell me honestly if this is real and maybe how it really works. thanks for all constructive comments.
Post Sat Mar 26, 2016 3:39 pm
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oldguy
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quote:
A promissory note is a legal instrument (more particularly, a financial instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. If the promissory note is unconditional and readily salable, it is called a negotiable instrument.[1]

http://www.formfindr.com/promissory-note-headline/?utm_source=bing&utm_medium=cpc&utm_term=%2BPromissory%20%2BNote&utm_content=%7Bcreative%7D&utm_campaign=static__promissory_note__search&u_adgroup=promissory_note__b&u_network=o&u_device=c&u_placement=%7Bplacement%7D&u_country=us&u_producttype=formfindr&u_product=promissory_note&u_matchtype=e&u_landingpage=uniform2&u_aceid=%7Baceid%7D&u_adposition=%7Badposition%7D


Yes, a promissory note is real, been around for decades. And there are sites where you can get the forms (second quote ) to do it yourself.

But 'monetize' means sell it to someone. If you came to me and said "here's my note that says I promise to pay you $100,000 5 years from now, pls give me $100,000" I probably wouldn't do it, lol. And neither will anyone else - people that have several hundred thousand usually aren't stupid.

But that aside, what's the goal? The note is still debt, an IOU - you just owe it to a different party. Are you trying to get a lower interests rate? Or a longer term?
When I want to do that, I refinance a house and draw out the equity - that way I get a 4% rate and 30 yrs to repay.
Post Sat Mar 26, 2016 4:18 pm
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jparkh81
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promissory note  Reply with quote  

thank your for your thoughtful response. I need to clarify a bit more. Lets say you already have a mortgage of $100,000. You write a promissory note for $100,000 (or the payoff amount) that says will be paid in monthly payments of $800 per month until the obligation if fulfilled. However on the promissory you give the bank the option to trade or sell the note to the market or investors. In the event the note is sold or traded all obligation for you to fulfill the note is voided and thus the mortgage is paid off.
So the bank has the choice of collecting $800 per month or getting the full amount immediately. Maybe you make the amount of the note to include 30 years of interest at 4% or something.

So my question is whether or not a bank actually would or could sell the note. It seems like if there is no obligation attached to the note it would be worthless and thus no one would buy it but people are saying that's not the case. They say it still has value because of your signature and they are traded in markets all the time. I hope that makes more sense.
Post Sat Mar 26, 2016 7:44 pm
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oldguy
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quote:
So my question is whether or not a bank actually would or could sell the note.


No - the bank already has the option to sell your mortgage, in fact they usually do. The bank sells it to investors, they either break it up or bundle it with a multi-million dollar chunk. Also, the bank currently hold title to your house as collateral, they will no let go of that leverage - ie, if someone fails to pay, the bank gets the house.

As for collecting the whole amount immediately - the bank doesn't want that. They are in the business of locating qualified borrowers to place their money with - so they want the $800/m, not the lump sum.
Post Sat Mar 26, 2016 11:02 pm
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oldguy
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I just noticed the 'engineer' on your profile. So you'll know the math - what I have done for many years is increase my house loans (home & rentals). Eg, you refi and remove $50k of equity - invest that $50k in an SP500 Index Fund (an average longterm return of 11%/yr) and leave it for 30 years, that's $1,100,000. Meanwhile the extra $50k loan at 4% will cost $239/m ($86,000 total). Of course you have to wait until your house builds up equity - one of my rentals, 1981 to 2014, was on it's 4th mortgage, that house was an ATM for me. In addition to all of that 'seed' money for the SP500, it also paid out about $250,000 in rental income.

But it appears that your quest is to help pay off debt? For 40 years I worked on how to get MORE debt so that I could leverage that capital. A good plan (worked for us) is to always direct your income stream to its 'highest and best use" - and that would not be to retire 4% capital loans, those are "keepers", invest elsewhere.

What kind of eng - ee, me? I was in the defense industry, Apollo in the 1960s, missiles, smart bombs later.
Post Sat Mar 26, 2016 11:22 pm
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jparkh81
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good advice  Reply with quote  

That's actually really smart advise. I will take that into consideration.
I am a Mechanical Engineer designing plumbing and HVAC systems for commercial buildings.

Ok so people are saying that you write a note for the payoff amount of your mortgage with interest but you use wording that says payments to be collected at your address which means the bank has to send someone to your house to collect the payment each month and you are not legally obligated to send the payment to them. (whether or not this works is still a mystery to me) The bank has 7 days to raise any objections. If they do not raise an objection it constitutes acceptance. (supposedly) At that time the bank makes a choice of sending a person to your house each month or selling the note, getting their money, and releasing you of any obligation in which case the house is yours. The only way I can see that they would be able to sell the note is by bundling it will other loans as you mentioned and they do all the time. Therefore the investor buying the bundle has to take the good with the bad.

Again I'm not sure about any of this but is seems like a good deal for both me and the bank holding the mortgage since they get their money. The investor buying the note gets the shaft but will probably make enough money on the other loans that it wouldn't matter all that much.
Post Mon Mar 28, 2016 4:15 pm
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oldguy
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quote:
but is seems like a good deal for both me and the bank holding the mortgage since they get their money. The investor buying the note gets the shaft but will probably make enough money on the other loans that it wouldn't matter all that much.


Not only is that larceny - but also extortion - specifically 'Grand Larceny by extortion'. Purposely stiffing your lender is frowned upon. And rationalizing the theft by thinking that he'll make enough money anyway, it wouldn't matter much? Hmmm. There are 1000's of ways to make money honestly, no need to stoop to that. Besides, those little rooms with bars for walls don't even have TV.
Post Tue Mar 29, 2016 12:51 am
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