Maryland Promissory Note

Introduction

Key Things to Know

1. 1

   A promissory note is a written, signed promise by one party (the maker) to pay a definite sum of money to another party (the payee), either on demand or by a set date.

2. 2

   Maryland doesn't use a single flat usury cap. Absent a written rate agreement, the default rate is 6% per year (Md. Code, Commercial Law Section 12-102). With a signed written agreement, a lender may charge up to 8% simple interest, or, for a loan unsecured or secured by collateral other than a savings account, up to 24% per year for loans made on or after July 1, 1982 (Section 12-103). Loans secured by a residential first mortgage or deed of trust, corporate loans, and commercial loans above $15,000 (or $75,000 secured by residential property) are exempt and may carry any agreed rate. A lender who overcharges forfeits to the borrower the greater of three times the excess interest and charges, or $500 (Section 12-114).

3. 3

   A Maryland promissory note does not need to be notarized or witnessed to be enforceable. Commercial Law Section 3-104 lists what makes a note a valid negotiable instrument (an unconditional promise, a fixed amount, a signature, payable on demand or by a definite date), and notarization isn't one of the requirements.

4. 4

   A confession-of-judgment clause (a clause letting the payee obtain a court judgment against the maker without filing a lawsuit) is banned in any contract tied to a consumer transaction, meaning a loan for personal, family, or household purposes; using one is a deceptive trade practice under the Maryland Consumer Protection Act (Commercial Law Section 13-301(12)). The clause remains legally available in a commercial or business-purpose note.

5. 5

   You generally have 3 years from a missed payment or the note's stated due date to sue to collect on an ordinary written promissory note in Maryland (Courts and Judicial Proceedings Section 5-101). If the note is signed "under seal," it becomes a "specialty" instead, extending the window to 12 years (Section 5-102).

6. 6

   If a Maryland promissory note is secured by personal property rather than real property, the lender generally needs to file a UCC-1 financing statement, typically with the Maryland State Department of Assessments and Taxation, to protect its priority against other creditors (Commercial Law Section 9-310).

7. 7

   Promissory notes are commonly used in Maryland for both family loans and business loans. A private, isolated loan between individuals doesn't trigger Maryland Consumer Loan Law licensing, which applies only to a person "engaged in the business of making loans" (Commercial Law Section 12-302).

Maryland Requirements for Promissory Note

• Notarization Not Required for Validity (Maryland Commercial Law Code Section 3-104)

  Maryland does not require a promissory note to be notarized or witnessed to be enforceable. Commercial Law Section 3-104's list of what makes a note a valid negotiable instrument does not include notarization or witnessing.

• Negotiable Instruments Requirements (Maryland Commercial Law Code § 3-104)

  To be a valid negotiable instrument, a note must be an unconditional promise to pay a fixed amount, signed by the maker, and payable on demand or at a definite time.

• Maximum Legal Interest Rate (Maryland Commercial Law Code Section 12-103; Section 12-102)

  Absent a written rate agreement, the default rate is 6% per annum. With a signed written agreement, up to 8% simple interest per annum, or, for a loan unsecured or secured by collateral other than a savings account, up to 24% per annum for loans made on or after July 1, 1982 (18% before that date). Loans secured by a residential first mortgage, corporate loans, and commercial loans above $15,000 (or $75,000 secured by residential property) are exempt and may carry any agreed rate.

• Usury Penalty (Maryland Commercial Law Code Section 12-114)

  A lender who charges interest above the applicable cap forfeits to the borrower the greater of three times the excess interest and charges collected, or $500. A usury claim is defeated if the lender corrects the rate within 30 days of the borrower's notice.

• Statute of Limitations (Maryland Courts and Judicial Proceedings Code Section 5-101; Section 5-102)

  Generally 3 years from a missed payment or the note's stated due date to sue to collect on an ordinary written promissory note. A note signed "under seal" is a specialty instead, extending the window to 12 years.

• Confession of Judgment Banned for Consumer Loans (Maryland Commercial Law Code Section 13-301; Maryland Rule 2-611)

  A confession-of-judgment clause in a contract tied to a consumer transaction, meaning a loan for personal, family, or household purposes, is a deceptive trade practice under the Maryland Consumer Protection Act. The clause remains legally available in a commercial or business-purpose note, where Rule 2-611 governs the court procedure for entering it.

• Secured Transaction Filing (Maryland Commercial Law Code Section 9-310)

  If a note is secured by personal property, the lender generally must file a UCC-1 financing statement, typically with the Maryland State Department of Assessments and Taxation, to perfect and prioritize its security interest against other creditors.

• Maryland Consumer Loan Law (Maryland Commercial Law Code § 12-301 et seq.)

  Maryland Consumer Loan Law licensing requirements, administered by the Commissioner of Financial Regulation, apply only to a person "engaged in the business of making loans." An isolated private person-to-person promissory note does not trigger these requirements.