Promissory Note Default Demand Letter: Acceleration, Deadlines and Guarantors

What counts as a default on a promissory note?

Default is whatever the note says it is. A missed payment is the usual trigger, but notes often list other events: a bounced check, the borrower's bankruptcy, the sale of collateral, or a broken promise in a related loan agreement.

• Grace period. Some notes treat a payment as late only after 5, 10 or 15 days.
• Notice and cure. Some require written notice of default and a set number of days to catch up before the holder can do anything more.
• Notice address. Many specify where and how notices must go. A letter sent elsewhere may not count.
• Default interest. Some raise the rate after default. That higher rate still has to fit within the law.

Before writing, pull the original note, every amendment, the payment history and any security agreement or deed of trust that goes with it.

How does an acceleration clause work?

An acceleration clause lets the holder declare the entire unpaid balance due at once after a default. Without one, you generally can claim only the installments that have come due.

Acceleration affects the deadline too. For a note payable at a definite time, the six-year limit runs from the due date, or from the accelerated due date if the balance was accelerated (Commercial Code section 3118(a)). Pick the date deliberately and state it.

How long do you have to sue on a promissory note in California?

Generally six years for a negotiable promissory note, and four years for a written loan agreement that is not a negotiable instrument. Which applies depends on the document.

A note is negotiable when it is an unconditional promise to pay a fixed amount, payable to order or bearer, on demand or at a definite time, without other undertakings (Commercial Code section 3104). Notes with extra obligations may not qualify. Under Code of Civil Procedure section 360, a payment on a promissory note can start a new limitations period, though a payment cannot revive a claim that has already expired. How that rule interacts with the Commercial Code's six-year period is a question for a lawyer.

What interest, late fees and attorney's fees can you claim?

The note's agreed rate keeps running after a breach until a judgment replaces it (Civil Code section 3289(a)). The rate itself must respect California's usury limits, set in the state Constitution.

• Personal, family or household loans: up to 10 percent a year if agreed in writing (Article XV, section 1). Loans used mainly to buy, build or improve real property are not treated as personal-purpose loans for this cap.
• Other loans: the higher of 10 percent or 5 percent plus the Federal Reserve Bank of San Francisco's rate on the date the Constitution specifies, again if agreed in writing. Without a written rate agreement, the constitutional rate is 7 percent.
• Exempt lenders: the caps do not apply to banks, credit unions, licensed finance lenders and certain loans made or arranged by licensed real estate brokers, among others.
• Late charges on a single-family, owner-occupied home loan: no more than 6 percent of the principal-and-interest installment or $5, whichever is greater, and only after 10 days (Civil Code section 2954.4), with some lenders excluded.
• Attorney's fees: recoverable when the note provides for them, and California makes a one-sided fee clause reciprocal (Civil Code section 1717).

Fees charged as a fee, bonus or commission count toward the usury limit under the same constitutional section. If a private loan's effective rate may exceed the cap, get legal advice before any interest goes into the demand.

Should the demand letter go to the guarantor too?

If the guaranty covers the default, it can. A guarantor is someone who "promises to answer for the debt, default, or miscarriage of another" (Civil Code section 2787). Read the guaranty to see whether it requires notice of default, a demand, or efforts to collect from the borrower first.

California gives guarantors several default protections. For example, a guarantor may require the creditor to proceed against the borrower first, and is released to the extent prejudiced if the creditor neglects to (Civil Code section 2845). A guaranty can waive these rights (section 2856), and the statute says a clause expressing an intent to waive works without any particular wording. Read the guaranty's waiver clause before deciding whom to pursue first.

One more check: if you are in the business of lending, California's debt collection law can reach your letters to individual borrowers and guarantors, including some business loans entered into, renewed, sold or assigned on or after July 1, 2025 (Civil Code sections 1788.1(d) and 1788.2).

Steps to write a promissory note default demand letter

1. Identify the note by date, principal amount, borrower, holder and any guarantor.
2. State the default: which payment or term, its due date, and that it remains uncured.
3. Quote the default, notice and acceleration clauses you rely on.
4. If accelerating, say so expressly and give the accelerated balance with a breakdown of principal, interest and any allowed charges.
5. Give the cure or payment date and payment instructions, matching any period the note requires.
6. Send it to the notice address and by the method the note requires, with a copy to each guarantor if the guaranty calls for it.

For the basics of the format, see what a demand letter is. If the borrower is a friend or relative and nothing was signed, our guide to personal loan demand letters fits better.

What changes when the note is secured by real property?

A note secured by a deed of trust brings in foreclosure procedures and limits on deficiency judgments that a demand letter alone does not resolve. The California guaranty statute itself refers to these rules, including Code of Civil Procedure sections 580a, 580b, 580d and 726.

The 10 percent post-breach default rate in Civil Code section 3289(b) also does not apply to a note secured by a deed of trust on real property. If your note is secured by a home or other real estate, talk to a lawyer about the order of steps before you accelerate.

Before you accelerate the balance: an attorney-written default notice

Declaring the full balance due sets a new date for the six-year limit and may be subject to the note's cure terms, so the wording of an acceleration notice carries weight. A borrower who missed one payment may need only a one-page reminder. Attorney drafting fits when you plan to accelerate, when the note requires a precise notice-and-cure sequence, when a guarantor is involved, when the interest terms raise usury questions, or when collateral is part of the deal.

Through Talk to My Lawyer, a licensed California attorney writes your letter from your facts and documents (the note, guaranty and payment history) and sends it on your behalf. Foreclosure and a suit on the note each carry their own rules, so get advice specific to your loan before choosing either.