Borrower Stopped Paying? Get Legal Involved—Fast
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
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Borrower Stopped Paying? Get Legal Involved—Fast
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Investor · Baltimore County, MD · Member since 2014 · 466 posts · 439 votes
1yAt 60 days we inform our servicer that we will accept reinstatement only; no partial payments. At 90 days we send a demand letter from our attorney. Not only is the time factor critical for our investors, but if your loan docs say one thing and you do another, you are establishing for the borrower that the docs are just suggestions and that you won't follow through consistently. It's a lot like parenting.
And one of the best parts about note investing is that the investment is backed by collateral. Well, that perk is not real unless you are willing to take swift action. There will still be plenty of opportunuties for the borrower to keep their home if they communicate and make a genuine effort to work with us.
5 Replies
- Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes1y
What I always say is act fast. If a tenant/borrower can't pay $2000 this month, how are they going to pay $4000 next month or $6000 in month 3. It just adds up to fast. Not sure what the % is, but I would doubt very few are able to catch up. Maybe you can do loan mod, but they still have to have the ability to pay.
Just handed a 3 day notice to vacate to a tenant who is 3-4 months behind ( not my house, but customer's house) and she asked for more time because she has no money. I'm like, well you've had 3 months, are you going to have $10,000 in the next 10-20 days? She said no, so unfortunately I had to tell her, she has 3 days. She had cut off/blocked owner from email/phone calls.
- Rental Property Investor · New Braunfels, TX · Member since 2022 · 409 posts · 408 votes1yWe have only charged late payments once in the last 25 years. I let him slide for about 6 months being late a week or two. Finally I called him and said look, if you are late again I’m charging late fees. Sure enough, the following month he was late again. I sent him the late fee notice and he paid it and that was the last time he was ever late. My bad for not getting tougher sooner. They have been in the house now for 8 years, they have paid more in rent than I paid for the house.
Quote from @Chris Seveney:
When a borrower stops paying, our legal team is engaged immediately. This isn’t about being aggressive—it’s about protecting our investors and keeping the process moving.
We get calls all the time from note holders sitting on delinquent loans, unsure what to do, and often months behind on action. Their biggest mistake? Waiting too long and hoping it fixes itself.
Here’s what we tell them:
A. This is a business, not a charity.
B. Your loan isn’t just paperwork—it’s secured by an asset.
C. Every month you delay, you lose leverage and money.
In most cases, we walk them through:
1. State-specific legal timelines
2. Engaging foreclosure counsel
3. Negotiation strategies that don’t waste time
The goal? Resolve it quickly—whether that’s reinstatement, a workout, or taking control of the property.
Remember: emotions don’t belong in default management. You’ve got to make decisions that protect your financial future.
I am curious if you view this as aggressive. How soon do you take action when a borrower misses a payment?
Curious to hear how others handle this.
I have had a couple others struggling to pay on the 1st so I’ve told them they can pay by the 15th and there is no late fee, after that, you get an eviction notice. They have been tenants for 9 years and have never been on time but they always make it by the 15th. Win win in my opinion. - Investor · Baltimore County, MD · Member since 2014 · 466 posts · 439 votes1y
At 60 days we inform our servicer that we will accept reinstatement only; no partial payments. At 90 days we send a demand letter from our attorney. Not only is the time factor critical for our investors, but if your loan docs say one thing and you do another, you are establishing for the borrower that the docs are just suggestions and that you won't follow through consistently. It's a lot like parenting.
And one of the best parts about note investing is that the investment is backed by collateral. Well, that perk is not real unless you are willing to take swift action. There will still be plenty of opportunuties for the borrower to keep their home if they communicate and make a genuine effort to work with us.
- 1yDan DeppenBusiness MemberErie, CO · Member since 2017 · 274 posts · 267 votes
I like to send my own letter to the borrower when they miss the first payment. It prompts them to communicate if something is going on, and let's them know we are paying attention. It helps keep them out of the habit of slow paying.
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesSince we service our own loans - and since these are commercial, not residential, there are few farther barriers we need to cross. As soon as the borrower exceeds the 10 day grace period, he receives a phone call from our Comptroller. Should the answer received be unsatisfactory - and the ONLY satisfactory answer is you’ll have the payment immediately, my partner will contact the borrower. If it’s a short term problem he’ll reach an agreement with the borrower; if it looks like a long term problem he will inform me and we’ll come up with a strategy to try to give the borrower the time he needs to “get it together”, solve temporary cash flow problems, etc. and still protect ourselves. There isn’t a “One size first all” solution.
Quote from @Chris Seveney:
When a borrower stops paying, our legal team is engaged immediately (we send demand after borrower falls 3 months behind). This isn’t about being aggressive—it’s about protecting our investors and keeping the process moving.
We get calls all the time from note holders sitting on delinquent loans, unsure what to do, and often months behind on action. Their biggest mistake? Waiting too long and hoping it fixes itself.
Here’s what we tell them:
A. This is a business, not a charity.
B. Your loan isn’t just paperwork—it’s secured by an asset.
C. Every month you delay, you lose leverage and money.
In most cases, we walk them through:
1. State-specific legal timelines
2. Engaging foreclosure counsel
3. Negotiation strategies that don’t waste time
The goal? Resolve it quickly—whether that’s reinstatement, a workout, or taking control of the property.
Remember: emotions don’t belong in default management. You’ve got to make decisions that protect your financial future.
I am curious if you view this as aggressive. How soon do you take action when a borrower misses a payment?
Curious to hear how others handle this.
we regard foreclosure as a last resort; if there’s equity to protect the borrower will in all likelihood use every legal avenue available to delay, and then file a BK. When a borrower submits a dubious plan - but they themselves believe it will happen - we will usually go along BUT require a “deed in Lieu” of foreclosure, to be filed at a specific time in the future. We found that once we’re at this step there’s about a 50/50 chance the borrower is able to pay us off, or at least get current; about half the time we end up owning the property without having to spend tens of thousands on attorney fees.
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