Promissory notes
A written agreement or “promise” between two parties, with one (the note’s issuer) agreeing to pay the other (the note’s payee) a defined sum of money under specific terms.
Promissory notes, also called private lending notes, allow companies and individuals to receive loans from sources outside of a bank, either as a secured or unsecured loan.
Often a third party, called a loan servicer, works in conjunction with the lender and handles the loan documents, filings, and money transfers.
Mortgage notes
A mortgage note secures repayment of a loan by attaching a lien on a piece of property. Mortgage note investing happens between the borrower and the lender.
If the borrower fails to pay, the lender must go through the court system to foreclose on the loan and either sell or obtain ownership of the property.
Trust deeds
Like a mortgage note, trust deeds also secure repayment of a loan by attaching a lien on a piece of property.
The difference with trust deed investing is that there’s a trust involved in the process in addition to the lender and the borrower.
The trustee holds onto the title of the property used as collateral, allowing lenders to bypass the court system in order to foreclose on the loan.
Hard money loans
Hard money is an industry term used when financing is obtained through non-bank sources. Hard money loans are the same as promissory notes.
A lender gives money to a borrower under certain terms and conditions for repayment of the loan. Individuals or companies can be on either side of the transaction.
Borrowers may finance an entire project with hard money loans or they may use both bank and non-bank loans.