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The Collection Demand Letter is a Promissory Note companion document legally advising the borrower of a late / default payment owed to the lender within a specified period of time. When completing a Promissory Note, an Installment Note also may accompany the original document to detail the payment schedule (amounts and dates) associated with a loan of money or exchange of personal property. This documentation will prove helpful in the event the lender must prepare a Collection Demand Letter for presentation or delivery to the borrower.
A Collection Demand Letter document will typically specify the following:
- Full, legal name of borrower
- Date of original loan transaction (from Promissory Note)
- Payment due date (established on Promissory Note and / or Installment Note)
- Past due payment amount (established on Promissory Note and / or Installment Note)
- Signature of lender
The simple version of the Collection Demand Letter will provide a written form of notification using the above referenced information. However, the Collection Demand Letter will simply state the borrower’s payment has not been received by the lender and is now due.
An expanded version of this letter will provide the lender a written form of notification to the borrower of a late payment, as well as a demand for payment in full within a specified period of time. Depending on the specific language of the Collection Demand Letter, it may require of the borrower to immediately pay all principal, interest and any fees related to the original loan within the previously specified period of time. Additionally, notification of penalties, accrued interest and any applicable attorney’s fees related to recovery also may be imposed.
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The Collection Demand Letter may be used at any time during the loan period should the borrower be in default (late payments). When preparing the Collection Demand Letter, a copy for the lender and borrower should also be prepared. Should the lender determine court action be necessary to recover their loan amount and / or personal property, evidence of collection demands (the Collection Demand Letter) will aid in proving a negligent and unstable payment history by the borrower.
Of important note: Many suggest offering an appropriate amount of time for the borrower to remit each monthly payment, i.e. a five-day grace period immediately following the payment due date (determined during the Promissory Note and / or Installment Note preparation). Following this period, it may be appropriate to provide the borrower with the simple Collection Demand Letter. In the event the borrower fails to remit the late payment combined with any appropriate late fees, the lender may then deliver an expanded version of the Collection Demand Letter, and seek legal action to immediately collect the principal balance along with any interest and applicable attorney’s fees related to revocation.
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