When a person makes an agreement with someone to borrow money, oftentimes both parties will sign a promissory note. Within the promissory note will be the terms of the agreement, including how much is to be paid, the payment schedule of the funds due and any interest that will be applied to the overall principal amount of the loan. Many times, the promissory note will also outline how the money is to be paid back, such as by check or electronic funds transfer.
If the promisor (the person who borrowed money) has trouble abiding by all the stipulations in the promissory note, he or she can ask for a modification. However, it is completely up to the promisee (the person who the money is being borrowed from) to grant a promissory note modification. If a modification is granted, there are certain steps that have to be taken.
Identify the Changes
The first step involved in modifying a promissory note is to identify the terms that are causing problems. For example, if the note states that the repayment due dates are on the 7th of each month, but the borrower can't make payment until the 15th of each month, the repayment due dates would be the issue at hand. Most promisees would have no problem modifying notes so that a different due date can be reflected.
Other ways in which a promissory note could be modified is changing the payment method in which the borrower is expected to repay the funds. For example, if a person can only pay by money order, this could be updated in the note to overcome stipulations that implied payment could only be made through an electronic fund transfer.
Gain Agreement and Draft New Note
Now that the problematic terms of the promissory note have been determined, the promisor needs to communicate these issues with the promisee. It is completely up to the promisee to choose whether or not a modification will take place. If a modification is not granted, the person who borrowed funds needs to do his or her best to abide by the original terms. If the modification is granted, a new note needs to be drafted; this note will be almost identical to the original note except for the terms that are being modified.
Make it Legal
Once the modified note has been drafted, both parties will need to sign it. It is of the utmost importance for a newly drafted note to state the date of when the modifications are to begin. Often, an additional fee will be added to the overall balance of the note to compensate for the modifications being made. When signing the note, this will need to take place in front of a notary public to make it legally binding.