Without some security, a promissory note means nothing to a lender if you stop making payments. To protect its interests, a lender will secure the note with collateral. Collateral describes an asset that the lender will take if you fail to make your payments. To secure a promissory note, you will execute a security instrument at closing. This is a document that describes the collateral and details the terms and conditions under which the bank can take possession.
Provide the lender with the details on the security you will offer. For example, if you pledge your home, provide the address and estimated value. If you are giving a car, detail the year, make and model.
Allow access to an appraiser if applicable. Certain types of security, such as property or vehicles, require the lender to obtain a professional valuation from a licensed appraiser. The appraiser will make an appointment with you to evaluate the collateral.
Make an appointment for closing. Try to schedule as far in advance as you can so that you have time to prepare.
Review the documents prior to closing. Make sure the description of the collateral is accurate. If you have the opportunity, it is a good idea to have an attorney or legal expert review the documents.
Compile any supporting information as necessary. This will depend on the type of collateral, but it will be detailed in your commitment letter. For example, if you pledge real estate, the lender will need you to contact your insurance company and add the lender as mortgagee. This means if something happens to your house, the insurance company will remit payment to the lender in the amount of your loan.
Attend closing and sign the loan documents. There will be a number of documents in addition to the promissory note depending on the type of deal. The security instrument will also vary depending on the collateral. For real estate, you will sign a mortgage document. For a car, you will sign a motor vehicle financing statement. For bank accounts, it will be a pledge agreement.
Pay any applicable fees. Many security instruments need to be recorded with the state or county. The fees will vary based on the type of document and the individual state or county.
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