Florida Promissory Note: What Is It?
A Florida promissory note is a written agreement between a lender and a borrower that memorializes a loan given. The borrower promises to repay the loan in accordance with the agreement. Florida promissory notes may be secured or unsecured. A secured promissory note means that the borrower promises that if they default on the loan, the lender is entitled to a piece of collateral mentioned and described in the promissory note. However, collecting on real property for promissory notes is limited by Florida Statute 95.11(2)(b). There are other restrictions on promissory notes as well that can be found in Title XXXIX Chapter 679 of the 2018 Florida Statutes.
What Is the Maximum Amount of Interest That May Be Charged?
The maximum amount of interest that may be charged under Florida State law depends on the amount of the loan. For loans of less than $500,000, the maximum interest rate is 18%. For loans over $500,000, the maximum interest rate is 25%.
How to Write a Florida Promissory Note
When writing a Florida promissory note, the first decision that must be made is whether the note is secured. The purpose for this is to ensure that the note is properly titled. Secured notes must be titled as such: Secured Florida Promissory Note. Without a proper title for the document, it can be difficult for a lender to enforce the note and collect collateral. Next, the promissory note should list the following information:
- The date that the promissory note was created between the parties. The date is placed beneath the title. Format the date as month, day, and year.
- The legal name and the mailing address of the borrower. The borrower should also be identified as the borrower. For example: Daniel Jones, Borrower. If the note is secured, it may be helpful for the lender to collect if the physical address of the borrower is also listed.
- The legal name and the mailing address of the lender. The individual or the entity acting as the lender should be identified. For example: Summer Jones, Lender; Jones Financial Loan, Lender.
- Document the principal loan amount. This is the original amount loaned to the borrower without listing the interest. Interest is listed on its own. Ensure that this number is accurate before printing and signing the agreement.
- The amount of interest charged on the loan. This may be listed as APR (annual percentage rate) or per annum (per year). In Florida, the maximum amount of interest that may be charged for loans of $500,000 or less is 18%. For loans greater than $500,000, the maximum amount of interest rate that may be charged is 25%. Lenders who do not follow the law may face serious legal charges filed against them by the state.
- Payment information. Most Florida promissory notes are paid monthly. They may also be paid as weekly or bi-weekly. Whatever agreement is made for the installment payments, make sure it is documented in the promissory note. It should also include the amount of the payment and how many payments must be made. If the lender charges a late fee on past due payments, it should be listed as well as when the fee is assessed.
For secured Florida promissory notes, there are a couple of things to keep in mind. The first is to remember to include proper information to identify the collateral. Failure to do so could make it next to impossible to enforce. Second, it’s important to read and understand the limitations put in place by Florida law. Failure to do either of those could mean that the secured note is unenforceable.
Florida promissory notes should also include the following clauses to explain the conditions of the agreement:
- Interest Due in the Event of Default. This explains how interest will be charged on the outstanding balance if the borrower defaults.
- Payment Allocation. This explains how received payments are divided between the principal balance and the interest. For example, 70% of the payment to the principal and 30% of the payment to the interest.
- Prepayment. Prepayment is a term that means the borrower pays off the loan before the end of financing period. Some Florida promissory notes include a prepayment penalty for the borrower. This is an amount that borrower must pay if they want to pay the loan off early.
- Acceleration. Acceleration is a term that means the lender has a right to demand (or accelerate) that the remainder of the loan be paid immediately by the borrower. This generally happens when the borrower doesn’t follow the terms of the promissory note.
- Attorney Fees and Costs. If a disagreement arises over the promissory note, this explains how attorney fees and costs will be paid. Sometimes, the parties are responsible for paying their own attorney fees and costs. At other times, the borrower is responsible for paying their fees and the fees of the lender if the borrower is found in default of the agreement.
- Waiver of Presentments. The borrower is still required to make payments even if the lender isn’t physically present.
- Severability. If any part of the Florida promissory note is found to be unenforceable, the rest of the note remains in effect.
- Conflicting Terms. If conflicting terms are found, an amendment is created to clarify the confusion. That amendment will govern the agreement.
- Notice. An explanation to the borrower of whether they can expect the lender to inform them if the lender sues because of defaulting.
- Governing Law. This explains which state will govern the agreement. This is particularly important if one party is in Florida and the other party is in a different state.
A Florida promissory note needs specific documentary stamps for tax purposes. The amount, as of 2018, is .35 cents tax per every $100 of the loan. This must be paid to the Florida Department of Revenue. The promissory note should be signed by the borrower and two witnesses.
Get started now