Maryland Promissory Note: What Is It?
A Maryland promissory note is a written loan agreement between a lender and a borrower. Sometimes, there is also a co-signer who is a party to the agreement. The lender provides a loan and the borrower (and any co-signer) promises to repay the loan according to the terms of the agreement. Maryland promissory notes may be secured or unsecured. When a promissory note is secured, the lender receives the right to collect a certain piece of collateral documented in the note. An example of a secured promissory note is a loan for a vehicle. If the borrower does not pay as promised, the lender takes possession of the vehicle. A Maryland promissory note must comply with both contract law and securities law.
What Is the Maximum Amount of Interest That May Be Charged?
In the State of Maryland, the maximum amount of interest that may be charged is 6%. If a lender charges more than the state maximum, they may be subject to legal charges against them.
How to Write a Maryland Promissory Note
A Maryland promissory note begins with the proper title. This is important because a secured promissory note may be treated by a court as unsecured if it is not properly titled. For example, Secured Maryland Promissory Note. After the appropriate title is drafted, the following information is given to define the scope of the agreement:
- The date the parties entered into the agreement. This date is placed beneath the title of the document. It is listed as month, day, and year. The date is important for several reasons including if future collection activities are warranted.
- Identification of the parties involved. This includes the legal name and the role the party plays in the agreement. For example, ABCD Auto Loans Inc., Lender. If there is a co-signer, their name and role should be included.
- Mailing addresses of the parties. Next to the name and role of each party, list the mailing address. If the promissory note is secured, it is wise to list the physical address of the borrower and co-signer if it is different from the mailing address. This may help the lender retrieve promised collateral. If the lender has a separate payment address, the payment address should be listed with the payment information. This will help the borrower know where to send payments for proper processing.
- The amount of the principal loan. This is the amount of money loaned by the lender to the borrower. This amount does not include interest. Before executing this document, make sure that the principal loan amount is correct.
- The interest amount charged on the loan. The maximum interest rate for the State of Maryland is 6% per year. This is often expressed as either per annum or annual percentage rate (APR).
- Payment information. This is an important component of a Maryland promissory note because it outlines how many payments must be made, the due date for each payment, and the amount due for each payment. If a late fee is charged, this section should document the amount as well as when it would be added on to the account. If the lender has a separate payment address, it should be listed here.
If the Maryland promissory note is secured, a detailed description of the collateral should be listed. Without it, the court may treat the agreement as unsecured.
Following the presentation of the basic information, the promissory note should include some basic clauses that explain the terms and conditions of the loan. The following is not a full list of clauses that may be included. It is a list of the most commonly used ones:
- Interest Due in the Event of Default. This clause states the amount of interest that will be charged if the borrower defaults on the loan.
- Payment Allocation. This is how payments are split between the principal balance and the interest charged on the loan.
- Acceleration. An acceleration clause gives the lender the right to demand full repayment of what’s due if the borrower violates the agreement in some way.
- Attorney Fees and Costs. Attorney fees and costs may be incurred by one or both parties related to the Maryland promissory note. This clause explains how those fees and costs will be handled.
- Waiver of Presentments. A waiver of presentments clause states that the borrower must make payments on the loan even if the lender isn’t physically present.
- Severability. A severability clause keeps the rest of the promissory note in effect if one or more portions of it are found to be invalid.
- Conflicting Terms. A conflicting terms clause explains how any conflicting clauses will be clarified. This is most often done by creating and adopting an amendment that brings clarity and that will continue to govern the agreement.
- Notice. A notice clause informs the borrower whether the lender will notify them if the lender plans to sue for default.
- Governing Law. A governing law clause documents the state whose laws will be used to govern the agreement as well as any legal dispute that arises from it.
There is no legal requirement to have most Maryland promissory notes notarized or witnessed. However, for mortgages, there is a requirement for witnessing and notarization. The borrower and any co-signer should sign and date the promissory note.
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