Promissory Note Default Demand Letters
📝 Promissory Note Default Demand Letters
Enforcing Payment Obligations Under Promissory Notes
⚖️ Understanding Promissory Notes
A promissory note is a written promise to pay a specific amount on demand or at a definite time. It’s a negotiable instrument governed by UCC Article 3 and state contract law.
Essential Elements of a Promissory Note
- Unconditional promise to pay: “I promise to pay” (not “I will pay if…”)
- Fixed amount: Specified dollar amount (may include interest)
- Payable to order or bearer: “Pay to the order of [Lender]” or “Pay to bearer”
- Payable on demand or at definite time: Due date or “payable on demand”
- Signed by maker: Borrower’s signature
Types of Promissory Notes
| Type | Payment Terms | Example |
|---|---|---|
| Demand Note | Payable whenever lender demands | “Payable on demand” |
| Term Note | Due on specific date | “Due August 1, 2025” |
| Installment Note | Monthly/periodic payments | “$500/month for 36 months” |
| Balloon Note | Small periodic payments + large final payment | “$200/month, $10,000 due on maturity” |
| Secured Note | Backed by collateral (security agreement) | “Secured by lien on 2020 Toyota Camry” |
| Unsecured Note | No collateral | “This is an unsecured obligation” |
Key Note Provisions That Affect Collection
- Interest rate: Fixed or variable; stated annual rate
- Late charges: Penalty for late payment (often 5% of payment or $25, whichever is greater)
- Default interest: Higher interest rate after default (e.g., prime + 5%)
- Acceleration clause: Allows lender to declare entire balance due upon default
- Attorney fees: Loser pays winner’s legal fees
- Confession of judgment: Borrower pre-authorizes entry of judgment (banned in some states)
- Prepayment: Whether borrower can pay early without penalty
🔍 Identifying and Documenting Default
What Constitutes Default?
Read the note carefully. Default typically includes:
| Type of Default | Description |
|---|---|
| Payment default | Missed installment or failure to pay at maturity |
| Non-monetary default | Breach of covenant (e.g., failure to maintain insurance on collateral) |
| Insecurity default | Lender deems itself insecure (rare; requires good faith belief of impairment) |
| Cross-default | Default on another obligation triggers default on this note |
| Bankruptcy filing | Borrower files for bankruptcy (automatic stay complicates collection) |
Cure Period Requirements
Many notes include a cure period:
“Borrower shall have 10 days after written notice of default to cure the default before Lender may accelerate the note.”
If your note has a cure period:
- Send written notice of default specifying the breach
- Wait the full cure period before taking further action
- If borrower cures within the period, default is waived
- If borrower doesn’t cure, you can then accelerate
Strict Compliance Required: Failure to provide the required notice and cure period may waive your right to accelerate or may give the borrower a defense in court. Follow the note’s procedures exactly.
Calculating the Amount Due
Before demanding payment, calculate the exact amount owed:
- Principal balance: Original amount minus payments made
- Accrued interest: Calculate from last payment to demand date
- Late charges: Per the note’s late fee provision
- Default interest: If note provides for higher post-default rate
- Advances made: If you paid property taxes, insurance, or other costs on borrower’s behalf
- Attorney fees: If already incurred and note allows recovery
Pro Tip: Attach a detailed accounting to your demand letter showing how you calculated the balance. This demonstrates professionalism and reduces disputes about the amount.
✍️ Acceleration and Demand Strategy
What Is Acceleration?
Acceleration means declaring the entire unpaid balance immediately due, rather than waiting for future installments to become due.
Acceleration clause example:
“Upon default, Lender may declare the entire unpaid principal and accrued interest immediately due and payable.”
Why accelerate?
- Allows you to sue for full balance now (don’t have to wait for each missed payment)
- Starts statute of limitations running on entire debt
- Creates urgency for borrower to settle
- Required before foreclosing on secured notes in most states
Acceleration Process
- Verify default occurred and any cure period has expired
- Calculate total amount due (principal + interest + fees)
- Send written notice of acceleration to borrower
- State deadline for payment (typically 10-30 days)
- Describe consequences (lawsuit, foreclosure if secured)
Demand Letter vs. Acceleration Notice
These are often combined in one letter:
- Notice of Default: “You failed to make the payment due on [date]”
- Notice of Acceleration: “We hereby accelerate the note and declare the entire balance of $[X] immediately due”
- Demand for Payment: “Pay $[X] by [date] or we will file suit”
Timing Considerations
- Send demand promptly after default: Delays can waive your rights or suggest you don’t take default seriously
- Allow reasonable time to respond: 10-30 days is standard depending on amount
- Consider borrower’s situation: If borrower is insolvent or in bankruptcy, acceleration may be futile
- Check statute of limitations: In some states, accelerating starts a new SOL clock
📄 Sample Demand Letters
Sample 1: Installment Note – Missed Payment with Cure Period
[Lender Name]
[Address]
[Date]
[Borrower Name]
[Address]
SENT VIA CERTIFIED MAIL
Re: Notice of Default and Opportunity to Cure
Promissory Note dated [Date]
Original Principal: $[Amount]
Dear [Borrower Name]:
This letter is formal notice that you are in default under the Promissory Note dated [date].
DEFAULT:
You failed to make the monthly payment of $[amount] due on [date]. As of today, you are [X] days past due.
AMOUNT DUE TO CURE DEFAULT:
To cure this default, you must pay the following by [date – 10 days from letter]:
Missed payment (principal & interest): $[amount]
Late charge (per Note Section [X]): $[amount]
TOTAL DUE TO CURE: $[Amount]
CONSEQUENCES OF FAILURE TO CURE:
If you do not cure this default within 10 days as required by Section [X] of the Note, we will:
1. Accelerate the Note and declare the entire balance of $[total] immediately due
2. File a lawsuit to recover the full amount plus attorney fees and costs
3. [If secured: Initiate foreclosure proceedings on the collateral]
PAYMENT INSTRUCTIONS:
Send payment via [check/wire/ACH] to:
[Payment address/instructions]
We hope to resolve this without acceleration or litigation. Please contact us immediately if you need to discuss payment arrangements.
Sincerely,
[Signature]
[Name]
[Title]
Sample 2: Acceleration and Final Demand
[Lender Name]
[Address]
[Date]
[Borrower Name]
[Address]
SENT VIA CERTIFIED MAIL
Re: Notice of Acceleration and Demand for Payment
Promissory Note dated [Date]
Dear [Borrower Name]:
NOTICE OF DEFAULT:
You are in default under the Promissory Note dated [date] for failure to pay [describe default: missed payments since X date / payment due at maturity on X date].
NOTICE OF ACCELERATION:
Pursuant to Section [X] of the Note, we hereby ACCELERATE the Note and declare the entire unpaid balance immediately due and payable.
TOTAL AMOUNT NOW DUE:
Principal balance: $[amount]
Accrued interest through [date]: $[amount]
Late charges: $[amount]
[Other fees/advances if applicable]: $[amount]
TOTAL AMOUNT DUE: $[Amount]
Interest continues to accrue at [X]% per [year/month] until paid in full.
DEMAND FOR PAYMENT:
We demand payment in full of $[amount] by [date – 15 days from letter date].
REMEDIES:
If payment is not received by the deadline, we will immediately file suit and pursue all available remedies, including:
• Judgment for the full amount plus continuing interest
• Attorney fees and court costs as provided in Section [X] of the Note
• Wage garnishment and bank account levy
• [If secured: Foreclosure on the collateral securing this Note]
ATTORNEY FEES:
Section [X] of the Note provides that the prevailing party in any dispute shall recover reasonable attorney fees. This letter serves as notice under that provision. If we retain counsel, you will be liable for our attorney fees in addition to the principal, interest, and costs.
We prefer to resolve this without litigation. Contact us immediately to arrange payment or discuss settlement.
Payment should be sent to:
[Payment address/instructions]
Sincerely,
[Signature]
[Name]
[Title]
Enclosure: Accounting Statement
🛡️ Secured Notes and Collateral Rights
If the note is secured by collateral (real estate, vehicle, equipment, inventory), you have additional remedies and considerations.
Types of Security Interests
| Collateral Type | Security Document | Enforcement Remedy |
|---|---|---|
| Real estate | Mortgage or Deed of Trust | Foreclosure (judicial or non-judicial depending on state) |
| Vehicles | UCC-1 on title; security agreement | Repossession |
| Equipment/inventory | UCC-1 financing statement; security agreement | UCC Article 9 sale or repossession |
| Accounts receivable | Security agreement; UCC-1 | Direct collection from account debtors |
Demand Letter for Secured Note
Your demand letter should reference the security:
- Identify the collateral specifically
- State that you have a perfected security interest
- Warn that foreclosure/repossession will occur if not paid
- Reference the security agreement and any recorded documents
Foreclosure vs. Lawsuit Decision
Foreclosure (secured by real estate):
- Pro: Get the property; may cover debt if property has equity
- Con: Expensive, slow (6-18 months in many states), may not cover full debt if underwater
- Some states allow deficiency judgment after foreclosure; others don’t
Repossession (vehicles/equipment):
- Pro: Fast; can often repossess without court order if no breach of peace
- Con: Collateral may have depreciated; must follow UCC Article 9 sale procedures
- Can sue for deficiency after UCC sale
Sue on the note (ignore collateral):
- Pro: Faster judgment; can garnish wages/levy accounts
- Con: If borrower has no assets/income, judgment is worthless
Dual Track Strategy: You can pursue both foreclosure and a lawsuit on the note simultaneously in many states. This maximizes pressure on the borrower to settle.
💼 How I Help with Promissory Note Collection
I represent lenders and noteholders in collecting on defaulted promissory notes, from demand letters through litigation and foreclosure.
Services:
- Review note and security documents for enforceability
- Draft notice of default, acceleration, and demand letters
- Negotiate settlements and workout agreements
- File lawsuits to obtain judgments
- Handle foreclosure proceedings (real estate)
- Pursue UCC remedies (repossession, Article 9 sales)
When to Involve an Attorney:
- Note amount exceeds $25,000
- Borrower disputes validity of note or default
- Secured note requires foreclosure
- Multiple parties or guarantors involved
- Borrower has filed bankruptcy
- Note is past statute of limitations or close to it
Collect on Defaulted Notes
Whether secured or unsecured, I can help you enforce your promissory note and recover what you’re owed.
Email owner@terms.law
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