What does a promissory note represent in a real estate transaction?

A promissory note in a real estate transaction serves a critical dual function. It represents both the borrower's promise to repay the amount borrowed, typically to the lender, and it acts as evidence of the debt itself. This note outlines the terms of the loan, including the interest rate, repayment schedule, and the consequences of default. Essentially, it is a legally binding document that creates an obligation for the borrower to repay the loan as agreed.

The other options do not capture the full essence of what a promissory note entails. For example, the first choice suggesting it is given by the lender to the buyer inaccurately reverses the roles—the borrower is the one who provides the note to the lender. Stating that it is identical to a mortgage is misleading since a promissory note and a mortgage serve different purposes; the former is about the promise to repay, while the latter is the security for that promise. Lastly, saying it replaces the security instrument is incorrect because while the note represents the debt, the mortgage serves as the collateral backing that debt. Together, they function in the larger framework of a real estate transaction, but they are not interchangeable.