Which statement about promissory notes and mortgages is true?

• A. A promissory note transfers ownership of the real estate.
• B. A mortgage is a borrower’s promise to repay a debt.
• C. Promissory notes and mortgages are the same document.
• D. A mortgage pledges real property as security for a debt.

Answer: (D)

The idea being tested is how promissory notes differ from mortgages and what each one does. A promissory note is simply the borrower’s written promise to repay a debt; it spells out the amount, interest, and repayment terms, but it doesn’t encumber the property or transfer ownership. Ownership stays with the borrower, and the lender’s security comes from a separate instrument.

The true statement is that a mortgage pledges real property as security for a debt. It creates a lien on the property, giving the lender a legal claim if the borrower defaults. The mortgage is not the debt itself or the promise to pay—that’s the promissory note. If the debt is repaid, the lien can be released; if not, the lender can pursue foreclosure to recover what is owed. This separation—note for the promise to pay, mortgage for the security interest in the property—explains why the mortgage-related option is the correct one.

Others are off because transferring ownership isn’t done by the promissory note, the mortgage isn’t the same document as the note, and a mortgage isn’t merely a promise to repay.