How to Modify a Promissory Note

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A promissory note is a legally binding promise one party makes to pay money to a second party. The "note" contains the terms of repayment, including payment schedule or due dates, interests rate and how payments are delivered to the note holder (the party who lent the money). When the party that owes the debt has difficulty making payments on time, accommodating the interest rate or fulfilling other aspects of the note, it may be appropriate for both parties to agree to modify the note in order to avoid a situation where the party paying the note defaults on the obligation.

Step 1

Identify the terms of the note that are creating difficulty in repayment. If the note originally stipulated payment be made before the 3rd of every month, but your cash flow restricts you to payments after the 15th, you may need to modify the note to reflect a different due date. Other areas that may need to be modified include the method of payment (check, money order, cash or cashier's check, for example), interest rate, principal amount, duration of note or terms of early repayment.

Step 2

Communicate your need to modify the terms of the note to the note holder. Since default (inability to pay the note) is something both parties want to avoid, try to negotiate a reasonable accommodation that addresses the reasons you have difficulty making your payments. Once you can agree to the changes that need to be made to the original note, you can draft a modification to the note.

Step 3

Have the holder of the note draft modifications to the original note. There are many different forms you can use to modify a note. However, modifications to a promissory note do not have to be formal as long as they include a summary of the original term(s) being modified, the modification of the term(s) being put into effect, the date the change will go into effect, and if there will be any consideration (payment, fines or fees) that will be paid because of the modifications being made. For example, the note holder could reasonably charge a marginally higher interest rate (perhaps an additional 1 percent) if he has agreed to extend the note for an additional two to three years.

Step 4

Sign and notarize the modified promissory note. Once the draft is complete, and both parties have reviewed it (or have had a business attorney review it), the note needs to be signed and dated in front of a Notary Public to ensure that it is a legally enforceable agreement.

Tip

Promissory note modification forms can be downloaded from a number of online sites.

You will not need to have the modification to the promissory note registered by the local clerk of courts unless the original note was recorded.

Warning

Always retain a copy of both the original promissory note and the modified note for your records.

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