A promissory note is not recorded in the county's land records. The lender keeps the note. The note gives the lender the right to collect the loan if you don't make payments. Homeowners often think of their mortgage as an obligation to pay the money they borrowed to buy their residence.
But in reality, it's a promissory note that they also sign, as part of the financing process, which represents the promise to repay the loan, along with the repayment terms. The promissory note stipulates the size of the debt, its interest rate and the late fees. In this case, the lender withholds the promissory note until the mortgage loan is repaid. Unlike the trust or mortgage deed itself, the promissory note is not entered into county land records.
While many homeowners think they are officially paying the mortgage loan to “own their home”, it is actually the promissory note that the lender withholds until mortgage payments are completed that gives them the power to foreclose in the event of default. A holder who takes a note in exchange for something of value, in good faith and has no notice of any claim or defect in relation to the note, is called the holder in due course. Xander will have very few defenses against a holder who goes to court to collect the promissory note, which is why lenders can easily sell notes to investors. In some cases, promissory notes are transferred to a new payee; when the new holder accepts the promissory note in good faith, he or she is known as the holder in due course.
