Promissory Note

What It Means

A promissory note is a written legal instrument in which a borrower — or group of borrowers — makes an unconditional promise to repay a specified sum to a lender under defined terms, including the interest rate, repayment schedule, and consequences of default. In residential real estate, the promissory note is one of two core loan documents executed at closing, alongside the mortgage or deed of trust.

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The promissory note governs the personal obligation to repay. The mortgage or deed of trust secures that obligation against the property. These are legally distinct: the note creates the debt, while the mortgage gives the lender a claim on the property if the debt is not repaid.

How It Works in Co-ownership

When co-buyers finance a purchase with a Joint Mortgage, all Co-borrowers typically sign the promissory note. Each signer assumes personal liability for the full loan amount under Joint and Several Liability — meaning the lender can pursue any individual co-borrower for the entire balance, regardless of that person's Ownership Share or the internal cost-splitting arrangement among co-owners.

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This distinction is critical. The promissory note does not recognize internal agreements about who pays what. If one co-owner stops contributing, the remaining co-owners are legally responsible for the full payment. A well-drafted Co-ownership Agreement addresses this risk by defining Default triggers, remedies, and financial obligations among co-owners.

Why It Matters for Co-owners

The promissory note determines each signer's credit exposure. Late payments or default on the note may affect every co-borrower's credit — regardless of which party caused the missed payment. Removing a co-owner from the note after closing typically requires Refinancing the entire loan, because lenders do not release individual signers from an existing note.

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Co-owners who are not on the note (such as a Non-occupant co-owner who contributed to the down payment but is not a borrower) hold an ownership interest but bear no personal liability for the loan — a distinction that must be clearly documented in the Co-ownership Agreement.

Key Points

• The legal document that creates the personal obligation to repay a loan
• Distinct from the mortgage, which secures the loan against the property
• All co-borrowers who sign the note assume joint and several liability for the full loan amount
• Late payments or default may affect every signer's credit
• Removing a co-owner from the note typically requires refinancing the entire loan
• Internal cost-splitting arrangements are governed by the Co-ownership Agreement, not the note