Promissory notes can sometimes be misleading in their simplicity, and if you're about to get involved in or create a promissory note you should be aware of a few simple but crucial steps to take in order to avoid any legal ramifications.
One of the biggest mistakes a promissory note holder can make when creating a promissory note is to forget (and, overlook) the real importance and value of checking the credit history of the buyer. It may seem like a very simple thing to do, but you would be surprised how many times a person in this position forgets to do this simple task. It happens time and time again. So, when you go about creating a note, do NOT overlook the major benefit of checking the credit history of your potential buyer. By putting this simple step into play, you can save yourself from a having a bad experience not to mention saving yourself a ton of money both now and in the future.
Because by taking the step to check it could help you to resolve and eliminate any future worry of the ability of your buyer to honor and repay their future debt to you. Why there is not a single bank or financial institution in the country that will NOT even start to prepare a loan until they first do a check on the person and his or her credit rating. This being the case, you can see how it is just as important for you to put this same strategy into action yourself.
Another equally as important reason to check the credit rating of your buyer is... you may sometime in the future choose to sell your real estate property note, trust deed, or owner financed mortgage for cash money. What then? You will have peace-of-mind because of previously being aware of the credit history of your buyer. So, it will not only be of benefit to you now, but it will also make your real estate note far more valuable in the foreseeable future.
Usually the very first thing a potential promissory note buyer (and/or investor) is going to require to sell your promissory (real estate) note is information about your credit history
Knowledge of the credit history of the buyer is crucial because it can determine just how much money you will ultimately receive in cash if you decide to sell your real estate note. Of course, the better credit history the buyer has the less risky it is for a new buyer, and a much safer bet for him or her to go ahead with the deal. Knowing the credit rating and history of the buyer beforehand makes your promissory note far more valuable in the eyes of the buyer... and... ultimately for you as well.
What is an acceptable credit history report in relation to the sale of a real estate note? The answer to that question is really up to you. But typically, if it was my note I would not even consider it unless it has a score of less than say 550. The credit score counts for a least 40% of a total of 100% in rating real estate notes and its value. So, if you are contemplating on creating (and/or perhaps selling) a real estate note it really does pay to check and know beforehand the credit history of the buyer in more ways than one.