The real estate market is unpredictable, as is the financial market. Endeavoring into a new investment, whether it is a real estate or business transaction, needs careful preparation and thoughtful planning beforehand. One of the most important aspects of any transaction is how the transaction will be financed. Although cash is often used, debt financing is often necessary or preferable to the buyer and/or seller.
Understanding Debt Financing and Secured Lending
All basic debt financing transactions involve a promissory note and a security agreement. A promissory note describes the amount that is borrowed, the rate of interest, and the payment terms. A security agreement describes the collateral being used to secure the debt and the process the lender can use to collect the collateral if the debtor fails to pay the note. Once the debtor and lender execute a promissory note and security agreement, the lender must then take steps to perfect the security interest.
The method of perfection depends on the type of collateral in the transaction. In a real estate transaction, the security agreement (also known as the deed of trust) is filed in the property records. For other types of transactions, the lender can perfect its security interest by possession of the collateral, filing a UCC-1 form with the State, or other methods. Perfection of the security interest is very important because it puts the lender in first position to collect on the debt if the debtor runs into financial difficulty.
At Dossey & Jones, PLLC, our business and real estate lawyers in Conroe, TX have years of experience analyzing, drafting, and negotiating financing arrangements for debtors and lenders. We offer our clients customized and personalized legal counsel while maintaining a friendly, yet professional demeanor.
If you are looking for counsel for your business or real estate transaction, contact Dossey & Jones, PLLC to schedule an appointment.