Make a Maryland Promissory Note

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 the 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 and when it would be added to the account. If the lender has a separate payment address, it should be listed here.

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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 and 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.

A Sample Maryland Promissory Note with Examples for Each Step

A Maryland promissory note can be unsecured or secured; promissory notes in Maryland are regulated by contract and securities law. A secured promissory note must be titled as such ("Secured Maryland Promissory Note"); it must also be further identified with specific language and requires a detailed description of the security interest (the property that will serve as the collateral). A secured promissory note should include the following section:

• Security and Priority: In this section, the borrower and lender (payee) agree that all obligations under the note will be secured by the collateral defined in the security agreement entered into between the borrower and lender. This section contains a general description of the collateral explicitly defined in the security agreement.

A secured promissory note is generally accompanied by a security agreement that allows the lender to seize the collateral (specific property) in the event of default by the borrower.

The security interest in the specific property should be outlined in a UCC financing statement. When the financing statement is filed with the appropriate government agency, the lender's interest in the specific property is deemed "perfected," giving the lender top priority over future lenders seeking a security interest in the same property.

Both unsecured and secured promissory notes in Maryland should include the following sections:

• Definition of Terms: This section includes a list of terms and their meanings used in the loan agreement  ("As used in this Agreement, the following terms shall have the meanings set forth below").
• Payments: These are provisions relating to the terms for repayment of the amount due, including principal and interest, overdue amounts, default/nonpayment rate, manner of payment, and extension. This section should specifically note the date the promissory note was devised, the name and mailing address of the borrower and lender, the amount of money loaned to the borrower, the amount/annual percentage rate of interest to be charged (as allowed by applicable Maryland state law governing maximum interest/usury rates for written contracts), how repayment will be made (installments, interest-only, lump sum, or, in the case of a secured promissory note, a balloon payment), the number of payments, the amount of each payment, the due date of each payment, any late fee to be charged for late payment, and where and how payment is to be made.
• Allocation of Payments: This section describes how much of each payment will apply to the interest/principal.
• Guaranty/Co-Signer (optional): In this section, a third party (the guarantor) agrees to be directly or collaterally responsible for the obligation of the borrower to the lender in the event of default (the borrower fails to pay).
• Representations & Warranties: This clause explains the facts and protections in the event of default, respectively, if the statements made are not true.
• Covenants: A covenant in a loan agreement requires the borrower to fulfill certain conditions, such as punctual payment of principal, or prevents the borrower from taking certain actions.
• Defaults/Interest Due upon Default: This section defines the events that constitute a default and the interest due upon default (as allowed by applicable Maryland state law).
• Acceleration: This section requires the borrower to repay the remaining balance in the event of a default.
• Prepayment: This section states whether there will be a prepayment penalty or if the borrower is allowed to pay a sum of money to the lender before it is due/demanded without a penalty for doing so.
• Attorney Fees and Costs: This section describes which party will be held responsible for attorney fees and court costs should a case be filed and adjudicated in court due to a default.
• Waiver of Presentments: This section allows the lender to receive payment without presenting the promissory note.
• Non-Waiver: This section states that the entire promissory note is not waived if either party waives a certain section of the document.
• Severability: This section states that the rest of the promissory note will still be valid should a particular section be found illegal or incapable of enforcement.
• Integration: This section states that the promissory note constitutes the entire agreement between the parties.
• Conflicting Terms: This section states that an amendment will resolve any issue(s) and be determinative should the promissory note include terms that conflict.
• Notices: This section states the required form of all notices, requests, demands, claims, and other communications under the note, including notice to the borrower that the lender may seek a judgment against the borrower without notice and the addresses to which all official or legal correspondence should be delivered.
• Governing Law: This section defines the state law that will govern the promissory note.
• Dated Signature: In Maryland, both unsecured and secured promissory notes must be signed and dated by the borrower and any co-signer; the lender need not sign. There is no legal requirement for most promissory notes to be witnessed or notarized in Maryland (a promissory note that involves a mortgage, however, must be witnessed and notarized). Still, the parties may decide to have the document certified by a notary public for protection in the event of a lawsuit.

Promissory Note Resources in Maryland

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org

Maryland Higher Education Commission (MHEC)    

Maryland Department of Labor

University of Maryland Baltimore