When a borrower fails to pay an installment promissory note, the lender can use a notice of default to begin the collection process. Find out how to use a notice of default.
updated December 8, 2023 · 2min read
When a borrower fails to make payments on an installment promissory note, a notice of default is usually the first response a lender uses to begin collection proceedings.
This notice provides legal notice of the default, offers a chance for the borrower to make the missed payments, and states the lender's clear intent to take action to collect if the borrower does not catch up on the loan.
A promissory note is a legal document between a lender and borrower setting out the terms of a loan. It includes the amount being borrowed, the length of the loan, and the amount of the payments, as well as other terms.
When a loan has regularly scheduled payments, it is called an installment loan, since the borrower pays it back in installments. The installment payments are of a set amount and are due on regularly scheduled dates, usually once a month, throughout the life of the loan. Each installment payment is usually made up of both interest and principal.
A default on a loan happens when the borrower fails to make the scheduled payments in full. Default could happen with one missed payment or might not occur until after several payments have been missed, depending on the terms of the note. The promissory note itself should set out what constitutes default, so that both the lender and the borrower are clear on the terms.
When a borrower defaults on a loan or promissory note and the lender wants to collect on the missed payments, the first things the lender should do is to read the promissory note and determine what procedures and steps are required when a default occurs.
Often, the first step is for the lender to send the borrower a notice of default. This is a legal document that states the following:
You can write a notice of default on an installment promissory yourself, or you can work with an attorney or online service provider to help ensure that you comply with state and federal laws about debt collection. It's important to have proof that the notice of default was sent, so use certified mail with a signature required.
Collecting on an installment promissory note can be a complicated process. A notice of default is the first step a lender normally takes to collect on an installment promissory note that the borrower has defaulted on.
by Brette Sember, J.D.
Brette Sember, J.D., practiced law in New York, including divorce, mediation, family law, adoption, probate and estat...
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