Washington DC Promissory Note: What You Should Know
You’ve probably heard about a promissory note but wondering about its use. Well, promissory notes are common in modern-day financial transactions. Usually, you’ll come across them when taking a commercial loan, buying high-value items, applying for student loans, or transacting real estate businesses.
Lenders use a promissory note to outline the legal requirements of a lending contract with the borrower. Most importantly, the document is a critical safeguard against financial loss the lender may incur if the buyer defaults on the agreement.
Here we’ll talk about the Washington DC promissory note.
Defining Washington DC Promissory Note
A promissory note in Washington DC is a formal contract between a lender and borrower, establishing their lending agreement.
The agreement records the transaction details, including the principal amount given to the lender, the interest for paying back, the maturity date and penalties for default. A promissory note also contains a formal promise that the borrower will reimburse the lender for the loan received.
For this reason, lenders usually require borrowers to sign the contract as one of the prerequisites for getting the loan. Once signed, the Washington DC promissory note becomes valid and can be used in the event of a dispute.
Types of Washington DC Promissory Notes
There are several types of promissory notes defining the lender-borrower relationship. However, under Washington DC Statute, only two types of contracts are valid.
They include the following:
Washington DC Secured Promissory Agreement
A secured agreement contains additional security towards the payment obligation. Therefore, the borrower must provide an asset to guarantee payment of the loan. The lender, in this case, can seize the property assigned for collateral should the borrower fail to pay the premiums.
Washing DC Unsecured Promissory Agreement
An unsecured agreement is a legally binding promise but doesn’t secure the borrower’s obligation to pay the loan. If the borrower doesn’t honor the agreement, the lender has no collateral to claim for reimbursement. The lender’s only option is to file a lawsuit in a small claims court in the District of Columbia.
What’s the Maximum Interest Rate in Washington DC?
Washington DC has stringent codes that govern the interest rates for promissory notes. For instance, Section 28-3302 of the DC Code allows a maximum interest rate of 6% per annum. Similarly, Section 28-3301 of the same code allows lenders to charge a maximum rate of 24% if parties have a written contract.
Is a Washington DC Promissory Note Legally Binding?
A promissory contract in Washington is legally binding if it contains all the elements, including the borrower’s signature. Once signed, the court can use it if you have a dispute in your lending agreement.
Since a promissory contract is enforceable, you should read and understand the content before signing the document. Moreover, you should have a clear copy of your premium payments as evidence of compliance with the payment terms. You can always produce the payment records in court if a nonpayment dispute occurs.
How Can a Lender Enforce a Promissory Note in Washington DC?
Enforcing a promissory contract depends on the type of agreement signed. For a secured agreement, the lender has the legal right to collect the property designated as collateral. Usually, the borrower hires a property collection agency to retrieve the collateral.
However, enforcement may be tricky for an unsecured note since it offers no collateral. Usually, the lender will write a letter to demand payment for defaulted premiums. If the borrower doesn’t comply, the lender may approach the court for intervention.
Writing a promissory note in Washington DC is easy if you follow the correct steps. Before then, you should download an appropriate promissory note template for your case. Please avoid the hassles of contacting an attorney and download a free PDF template from our website today.