Does anybody know how a promissory note works when the borrower is either late with monthly payments and/or late for the whole month?

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akababy7 Asked December 2022

Does anybody know how a promissory note works when the borrower is either late with monthly payments and/or late for the whole month?

Momma holds a promissory note for a condo that her and dad owned. The borrower has always been inconsistent with payment even when dad was alive but she is worse now. I have been dealing with this for twelve years and to be honest I am tired of it. I have been more than easy to work with and patient and have not charged her any late fees. I e-mailed her and told her starting January 1st, 2023 I will be charging a late fee if payment is not received by 15 days after the first when due according to the terms of the note. She replied back and basically is blaming the bank for dropping there automatic bill paying service and said future payments should not be affected. Not only am I tired of this but this debt is part of momma's trust and after momma is gone the borrower will still owe payments. She has ten more years. So every month when I receive payment from borrower I have to divide it up and pay the four beneficiaries. Dad made this arrangement with this borrower because she is a friend of a friend. The promissory note also states that I can demand full payment when loan is defaulted. Should I go ahead and start the steps to collect? Also I know I might have to hire an attorney if it goes that far.

Burnout Financial Planning

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score 0 · Answer 1

Thanks for your reply. Is the borrower just stopping payment or she is just late? I think, too, you need a lawyer to tell you what your rights are.

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She has always been inconsistent. Most of the time she is late and alot of the time I have to ask her for her mortgage payment.

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score 0 · Answer 2

You need to speak with an attorney. There is a formal process to foreclose which will be different depending on the state. In my state a loan is in default after 30 days. Sounds like she is paying monthly, just not on time. Implementing a late fee may be your only recourse.

See an attorney!

After mom is gone, I would not divide the monthly payment for other beneficiaries. I would hold onto those funds and send a check to others yearly. You will not be able to close the estate until that mortgage is paid in full. Could you sell.the note to a financial institution? Or course you would have to discount the face value, but it may be worth it.

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score 0 · Answer 3

If the debt is secured by the property in question, and the loan is in default, you can repossess the property. Foreclosure is the way to do that, and you’d better get an attorney to initiate it. When you (or the trust, which is a legal entity unto itself) again own the property, you can sell it to someone else.

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I’d go the foreclosure route, sell it to someone else, and get a 20 percent cash down payment. Don’t finance it for them. They can get their own mortgage, and you’re paid in full at closing. No more chasing payments, and you invest in CDs so money guaranteed by FDIC. The money will be there for momma. Check with a lawyer first. You’ve been dealing with something that never should’ve happened in the first place. Thanks, Dad.

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score 0 · Answer 4

That money belongs to your mother, not the beneficiaries of her trust while she's still alive.

Get proper legal advice for this situation.

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I know that. My question was how does a promissory note work when borrower does not pay?

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score 0 · Answer 5

Splitting for beneficiaries—why? Anyway, as to the nonpayment, borrower has defaulted and you should demand full payment now according to terms of the contract. Your dad’s gone and you are in charge now.

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Adding this: I don’t know your official title in all this, POA, executor of dad’s estate, trustee? But you may have a fiduciary duty under the law to call in the note if borrower is in default. Lawyer can advise.

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score 2 · Answer 6

This is for a lawyer preferably the one who wrote up the agreement. If a lawyer was not involved, there may be a problem.

Has your Dad died? I don't think you should be splitting the payment every month. This is income for Mom and Dad if alive. If Mom/Dad need Medicaid at any time, giving this money to "beneficiaries" maybe seen as gifting.

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Oquestions. Eventdently I did not explain very well. The spltting of the borrowers check happens after momma is deceased according to her trust. Yes the money is hers now and is used for her while she is alive. I know that. I am just trying to get the borrower to pay on a timely matter. I am not familiar with what I can with a promissory note. Yes I am poa and trustee. Momma will never qualify for medicaid and want have too. It

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Does anybody know how a promissory note works when the borrower is either late with monthly payments and/or late for the whole month?

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