No matter the protective measures taken, it is a simple market fact that borrowers sometimes default on loan payments. There is little a lender can do to prevent such defaults, but some steps can be taken to remedy the situation. One of the simplest and most important things a lender can do after a default is provide notice of that fact and request either an immediate remedy or the acceleration of the whole loan.
The enclosed document demands that the late payment be made, and warns that if action isn’t taken, the entire loan will be due immediately. The notice is constructed to help you get what is rightfully yours, with a tone designed to be both professional and firm. In the end, you know your borrowers better than anyone else: you may want to alter the correspondence to best suit your personal and business needs.
2. Dos & Don’ts Checklist
- Review the terms of your promissory note. It should include information about the steps a lender must take after a default, and about the consequences that can or will result for the borrower. If there are specific procedures that you must follow according to your agreement, make sure that you have followed them.
- The enclosed notice assumes that the borrower defaulted on an installment promissory note. Under an installment note, the borrower is obliged to make regular, equal payments until the note is paid off. If the note under which the borrower defaulted was not an installment note, do not use the document that follows.
- Generally, it is best to send a polite notice of default. In many cases, a failure in payment was a simple mistake. A nasty notice may get you paid, but any personal or business relationship may be destroyed as a consequence.
- If a borrower just won’t pay, don’t be afraid to contact a lawyer. This may be your best recourse to get what is owed to you.
3. Notice of Default on Installment Promissory Note Instructions
- Write in a deadline by which you must receive payment. This deadline may be provided in the terms of the note itself. If the note does not have any time limits, write a date that will work for your arrangement. Generally, a week or two will provide sufficient time for the borrower to pay the amounts due.
- Consider sending your notice by registered mail. Although not strictly required, it will provide a record of your actions if court action later becomes necessary.
- If the deadline you established has passed, you can take any next steps provided in the note or pursue alternative means of retrieving your money (e.g., attorneys).