1) “Request for Notice of Delinquency” – This is
actually not a term in the note. It is prepared in escrow and recorded,
instead. Its purpose is for the senior lienholder(s) to notify the carryback
seller in the event the owner is not paying them. It protects the seller by
allowing them to jump in early to protect their interest.
2) “Unsecured” – This also is not a term of the note. It should be
inserted at the top of the note to indicate that there is no security
instrument (i.e., mortgage or deedoftrust) securing the note to the
property. Its use is not recommended!
3) “Late Charge” – Most notes have a “late charge”, such as 3%
of the payment after 10 days past due. Some states have regulations for
owneroccupied properties. Most investment transactions are not
regulated in this way.
4) “Due on Sale or Transfer” (“Alienation”) Clause
This term is included to protect the seller from the property being sold or
transferred to a party other than the original buyer. After all, the
secondary buyer might not be creditworthy.
enforceable, this term must also be included in the security instrument
(mortgage or deedoftrust). Other note terms do not need to be included
in the security instrument, but this one does.
5) “Assumption” – If the parties desire for the note to be
assumable, this can be included in the note. Usually, some criteria are
included to protect the seller. Often, the note says that the seller’s
approval “cannot be unreasonably withheld” when there are protections
included.
6) “Balloon Payment” – When a note is not “fullyamortized”
such that a balance remains at maturity, this is called a “balloon
payment”. If this applies, the note should be written to clearly include this
feature to protect both parties from misunderstanding.
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Terms
payoff or foreclose to recover the property. However, in order to be
Seller-Carryback
This term has an enforcement feature wherein the seller can force a