The promissory note is just what it sounds like. You're signing a promise to pay back the money you're borrowing to buy the house. In the note you are agreeing to lots of other stuff, but paying back the loan is the most important.

Bankers aren't dumb. They won't just accept your promise to pay back the loan. They want to have a way to protect their investment if you stop paying. 

They get that with the mortgage or trust deed (varies from state to state). When you sign that document you are putting up your new home as security for the loan. By signing the promissory note and mortgage you are agreeing that if you stop making payments the bank can foreclose and take your home.

The home buyer has agreed to that arrangement, so they really have no complaint if they stop making payments and the lender is forced to foreclose... but wait!!

Banks really don't want to take back homes. As we explained in a previous lesson, bank examiners frown on banks that have too many homes in their REO inventory. A black mark goes on the record of the bank.

I hope you've followed this up till now, because it is very important to foreclosure investors in two ways...

First, banks or mortgage lenders give delinquent homeowners plenty of slack when it comes to catching up on payments.
If the homeowner will talk to the bank and explain why they are behind with payments and why they will be able to catch up soon, the banks will listen and often delay foreclosure hoping the homeowner really will make up the payments. All that's good for the bank, the homeowner and the pre-foreclosure investor. Yes, that's YOU!

Often you can strike a purchase deal with the homeowner and then negotiate with the bank to forgive some of the back payments, or adjust the interest rate, or a lot of other things.

This knowledge means you can do deals that seem impossible to others. Very profitable deals!

* This series was written by an investor and not an attorney. Nothing here should be considered legal advice. If you have a question about any contract ask an attorney BEFORE SIGNING!

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