The borrower's signed promise to repay the loan: amount, rate, payment terms, maturity, and default consequences, in a single negotiable document.
The longer version
In a commercial real estate loan the promissory note is the debt itself: the borrower's written, signed promise to repay a stated principal amount with interest on stated terms. The mortgage or deed of trust secures that promise with the property, but the note is the obligation the lender owns and can sell.
A commercial note sets out the principal, the interest rate or index and spread, the payment schedule, the maturity date, how prepayment is handled, late charges and default interest, and what counts as a default. In a non-recourse loan it also limits the lender's recovery to the collateral, with the carve-outs set out in the note or in a separate guaranty.
Because a note is a negotiable instrument, the original matters. When a loan is sold, the note is endorsed to the buyer, often by an allonge attached to it, and the original travels to the new holder or its custodian. A participation works differently: the lead lender stays the lender of record and keeps the note, and the participant buys an interest under the participation agreement rather than the note itself. A note that cannot be found is replaced with a lost note affidavit and indemnity, which is avoidable work.
That is why the executed original is tracked as its own closing item rather than assumed to be in the file. It is the one document in the binder where a copy is not a substitute.
In Prodeal
In Prodeal it is a checklist line with a status, a due date, and a responsible party. The executed version lands in the deal's document set and carries into the closing binder.
Common questions
- What is a promissory note in real estate?
- The borrower's signed promise to repay the loan on stated terms. In a real estate loan it is paired with a mortgage or deed of trust, which secures the note with the property. The note is the debt; the security instrument is the collateral.
- What is the difference between a promissory note and a mortgage?
- The note is the promise to repay and the mortgage is the security for that promise. A lender can hold a note without collateral, but a mortgage without a note secures nothing. In a commercial loan both are signed at closing and the mortgage is recorded.
- What happens to the promissory note when a loan is sold?
- The note is endorsed to the buyer, often by an allonge attached to it, and the original is delivered to the buyer or its custodian. The recorded mortgage is assigned separately. Because the original note matters legally, it is tracked as its own item.
- What happens if the original promissory note is lost?
- The holder typically signs a lost note affidavit, often with an indemnity, to stand in for the original when enforcing or transferring the loan. It is avoidable work, which is why the executed original is tracked through closing and into custody.