Navigating a release of promissory note

Once the debt of a promissory note has been satisfied, a release of promissory note should be executed by the holder of the note. Such a document serves as the borrower's proof that the debt has been paid. This is sometimes called a release and satisfaction of promissory note. If it is a secured promissory note, then there also should be a release of the promissory note lien or mortgage.

If you are the borrower and the debt is owed to a commercial lender, you will typically receive the necessary releases shortly after the loan payoff. If the noteholder is a private party, it is a good idea to try to obtain the releases at the time the last payment is made. The failure of the noteholder to execute releases entitles the borrower to file a lawsuit to obtain releases.

Circumstances for release of a promissory note

The debt owed on a promissory note either can be paid off, or the noteholder can forgive the debt even if it has not been fully paid. In either case, a release of promissory note needs to be signed by the noteholder.

The release of a promissory note before it is paid off is sometimes called a cancellation and release of promissory note. Such an early release of a promissory note without full payment may be considered by the Internal Revenue Service ( IRS) to be a taxable event. The value of the amount of debt forgiven may be deemed either taxable income, or a gift subject to the federal estate and gift tax.

The death of the noteholder does not release the payor, except in the rare case where the note states that death will cancel the debt. Absent such a provision, the debt becomes an asset of the noteholder's estate, and it is then owed to the estate. If the loan is later paid off, either the administrator of the estate or the beneficiary who inherits the note will need to sign the release.

Release of a secured promissory note

The release of a promissory note is the same whether the note is secured or unsecured. However, if the note is secured, there also needs to be a release of the collateral:

• If the collateral is real property with a mortgage, then a release of mortgage is also needed.
• If the real property is subject to a deed of trust, then the trustee should execute a deed transferring the property to the borrower outright.
• If the collateral is personal property, then a release of lien or discharge of security agreement should be executed.

Release of promissory note forms

There is no single release of promissory note form, but the following is a simple release of promissory note sample:

Release of Promissory Note

In consideration of full payment of the Promissory Note dated October 1, 2013, with the face amount of $5,000.00, XX, the Noteholder, hereby releases and discharges YY, the Borrower, from any and all claims or obligations under said Promissory Note.

Signature of Noteholder: _________________ Dated: October 31, 2018

Printed Name of Noteholder: _________________