Make a Massachusetts Promissory Note

What Is the Maximum Amount of Interest That May Be Charged?

The maximum amount of interest that may be charged in a Massachusetts promissory note is 6%. Lenders who charge more could face serious legal charges.

How to Write a Massachusetts Promissory Note

A Massachusetts promissory note starts by choosing the proper title. If a secured Massachusetts promissory note isn’t titled as one, the court may hold that it is unsecured if a legal dispute occurs. Then, certain information is added to outline the scope of the agreement and the identity of the parties involved.

• The creation date for the promissory note. This date is listed below the title. It is listed as month, day, and year. The date of creation can help in the event that a legal dispute arises and any future collection activities that must occur.
• The identity of each party. The two main parties are the lender and the borrower. There may be a co-signer. Each party should be identified by its legal name as well as its role. For example, Tom’s Auto Financing, Ltd., Lender.
• The address of each party. This starts with the mailing address for each party. Then, if the promissory note is secured, the physical address of the borrower and any co-signer should be listed if it is different from the mailing address. If the lender’s payment address is different from the mailing address, the payment address should be listed with the payment arrangement information.
• The principal amount provided to the borrower. This is the amount of the loan provided without the interest charge. Before the Massachusetts promissory note is executed, ensure that this amount is correct.
• The interest rate for the loan. The maximum interest rate that may be charged in Massachusetts is 6%. This is most often expressed as per annum or as the annual percentage rate (APR).
• Information about paying the loan. This section includes how the loan will be repaid. The most common method of repayment is an installment agreement. The promissory note should list how many installments must be paid, when they are due, and the amount of each payment. It should also mention whether there is a late fee, the amount of the late fee, and when the late fee would be assessed.

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If the Massachusetts promissory note is secured, it should include information to identify the collateral.

Then, there are some clauses used to explain the terms and conditions. The following is a list of some of the most commonly used clauses in Massachusetts promissory notes. It is not a complete list of clauses that one could use.

• Interest Due in the Event of Default. The purpose of this clause is to document the rate of interest that will be charged on the default balance.
• Payment Allocation. The payment allocation clause explains to the borrower how their payments are split between the balance and the interest.
• Prepayment. A prepayment clause explains whether the borrower will be penalized for paying off the loan before it is due.
• Acceleration. An acceleration clause gives the lender the right to demand the rest of the balance on the loan if the borrower does not comply with the terms.
• Attorney Fees and Costs. This clause explains how attorney fees and costs incurred because of a disagreement related to the promissory note will be handled by the parties.
• Waiver of Presentments. This clause states the lender isn’t required to be physically present at the time the borrower makes payments.
• Severability. If one section of the promissory note isn’t valid, the rest of the promissory note remains in effect.
• Conflicting Terms. If the promissory note has conflicting terms, an amendment will be created to clarify the conflict and govern the agreement.
• Notice. A notice clause states whether the lender will inform the borrower that they plan to file a lawsuit for default.
• Governing Law. This clause documents the state whose laws will be used if there is a legal disagreement related to the agreement.

There is no legal requirement to have a Massachusetts promissory note notarized or witnessed. It should be signed and dated by the borrower and any co-signer.

A Sample  Massachusetts Promissory Note with Examples for Each Step

A Massachusetts promissory note can be unsecured or secured; promissory notes in Massachusetts are regulated by contract and securities law. A secured promissory note should be titled as such; 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 Massachusetts 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 Massachusetts 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 Massachusetts 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 Massachusetts, 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 promissory notes to be witnessed or notarized in Massachusetts. 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 Massachusetts

National Consumer Law Center

Credit Union National Association Guide to State Usury Laws                                                          

Help Center/Federal Student Aid      

CollegeScholarships.org 

Mass.gov                                         

Office of Student Financial Assistance (OSFA)    

Massachusetts Educational Financing Authority (MEFA)