Simple English definitions for legal terms
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A collateral note is a type of secured note, which is a written promise by one party to pay money to another party or to bearer. A collateral note is backed by a pledge of real or personal property as collateral. This means that if the borrower defaults on the loan, the lender can take possession of the collateral to recover the amount owed.
For example, if a person takes out a loan to buy a car, the car serves as collateral for the loan. If the borrower fails to make payments, the lender can repossess the car to recover the amount owed.
Another example of a collateral note is a mortgage note, which is a note that evidences a loan for which real property has been offered as security.