Borrower Stopped Paying Your Note in Texas? Here's What to Do

You checked your bank account on the first of the month and the deposit was not there. Then the fifth passed, and the tenth, and the grace period expired, and still nothing. Your borrower has stopped paying, and now you are staring at a situation that no private lender in Texas wants to face. The monthly income you counted on has dried up, the asset you thought was secure suddenly feels fragile, and you are not sure what your next move should be.

Take a breath. This situation is more common than you think, and you have more options than you probably realize. Thousands of note holders across Texas have navigated borrower non-payment successfully, and the outcomes range from full resolution with the borrower catching up to selling the note for cash and walking away to foreclosing and recovering value through the property. The worst thing you can do is nothing. The best thing you can do is understand your options, evaluate them clearly, and act decisively.

This guide is your action plan. It covers what to do in the first days and weeks after a borrower stops paying, how to evaluate the situation, what options are available to you at each stage, and how to choose the path that protects your financial interests most effectively.

The First 30 Days: Assess and Communicate

The initial period after a missed payment is critical. What you do — and what you learn — during these first 30 days shapes everything that follows.

Contact the Borrower Immediately

Do not wait weeks hoping the payment will show up. As soon as the grace period expires without payment, reach out to the borrower directly. A phone call is the most effective first contact — it is personal, immediate, and allows for a two-way conversation that email or letters cannot replicate.

The goal of this first contact is not to threaten or demand. It is to gather information. Ask the borrower what happened. Are they experiencing a temporary financial setback like a job loss, medical issue, or family emergency? Have they simply forgotten or encountered a payment processing issue? Or has their financial situation changed permanently in a way that makes the payments unaffordable?

The borrower's response — both what they say and how they say it — gives you valuable intelligence about what you are dealing with. A borrower who is embarrassed, apologetic, and forthcoming about a temporary problem is a very different situation from one who is evasive, hostile, or unreachable.

Review Your Documents

While you are assessing the borrower's situation, pull out your promissory note and deed of trust and review the default provisions. Identify the grace period after which a payment is officially late, any late fees or penalties that apply, the notice requirements you must follow before taking further action, the cure period the borrower has after receiving a formal notice of default, and any acceleration clause that allows you to demand the full balance upon default.

Understanding these provisions ensures that any action you take is on solid legal ground. Skipping required notices or failing to follow the procedures in your deed of trust can delay your remedies or create legal liability.

Check the Property's Status

A borrower who stops paying may also stop maintaining the property, paying property taxes, or keeping insurance current. Do a quick check on each of these. Are the property taxes current? You can check this through the county tax assessor's website. Is hazard insurance still active? Contact the insurance company or ask the borrower. Is the property occupied and maintained, or has it been abandoned? A drive-by or a conversation with the borrower can answer this.

If the property taxes are delinquent, that creates a tax lien that takes priority over your deed of trust — a serious issue that can reduce your recovery in a foreclosure. If insurance has lapsed, the collateral is unprotected against fire, storms, or other damage. If the property has been abandoned, it may be at risk of vandalism, squatters, or deterioration. Each of these findings affects your evaluation of the situation and may influence which option you pursue.

Evaluating Your Situation: The Key Questions

Before choosing a course of action, answer these key questions honestly. Your answers will point you toward the option that makes the most sense.

What Is the Property Worth?

The current market value of the property is the most important number in any default analysis. It determines your recovery in a foreclosure, the price a note buyer would pay for the defaulted note, and your leverage in negotiations with the borrower. Get a realistic estimate — not the best-case scenario, but what the property would actually sell for in its current condition within a reasonable timeframe.

What Is Your Loan-to-Value Ratio?

Divide the remaining note balance by the property's current value. If the LTV is below 70 percent, you have a substantial equity cushion that protects your investment and gives you strong options. If the LTV is between 70 and 90 percent, you have some protection but less margin for error. If the LTV is above 90 percent, your position is vulnerable and your options may be more limited. For a comprehensive understanding of how LTV and other factors affect your position, see this guide on what determines note value in Texas.

Is the Default Temporary or Permanent?

Based on your conversation with the borrower, assess whether their financial difficulty is a temporary setback they are likely to recover from or a permanent change that makes future payments unlikely. Temporary setbacks include job losses with strong rehiring prospects, medical events with expected recovery, or one-time expenses that disrupted cash flow. Permanent changes include disability, business failure, divorce that fundamentally altered the borrower's financial capacity, or a pattern of chronic financial instability.

Is the Borrower Cooperative?

A cooperative borrower opens up options that an uncooperative one does not. A borrower who communicates openly, acknowledges the obligation, and works in good faith to find a solution can be worked with through forbearance, modification, or a voluntary resolution. A borrower who is evasive, hostile, or has disappeared makes voluntary resolution impossible and points toward foreclosure or a note sale as the more practical paths.

What Are Your Own Financial Needs?

Your personal financial situation affects which option is best for you. If you depend on the note payments for living expenses, the urgency is greater. If the note is a supplemental investment and you can absorb the missed payments without hardship, you have more flexibility to pursue a longer-term resolution. If you need to eliminate the management headache regardless of the financial outcome, selling the note may be the best choice even if it produces a lower return than foreclosure.

Option 1: Work Out a Resolution With the Borrower

If the borrower is cooperative and the default appears to be temporary, negotiating a resolution directly with the borrower can be the best outcome for both parties.

Payment Plan for Arrears

The simplest workout is an agreement where the borrower resumes regular payments and pays an additional amount each month to catch up on the arrears over a defined period. For example, if the borrower missed three payments of $800 each, they might agree to pay $1,000 per month for the next 12 months — the regular $800 plus $200 per month toward the $2,400 arrearage.

Document this arrangement in a written agreement that both parties sign. Specify the catch-up payment amount, the duration, what constitutes a default under the new arrangement, and the consequences of failing to comply.

Forbearance

If the borrower cannot resume full payments immediately but expects to recover within a few months, a forbearance agreement allows reduced or suspended payments for a defined period. You might agree to accept interest-only payments for three months, or waive payments entirely for two months, with the understanding that regular payments resume afterward and the arrears are addressed according to an agreed schedule.

Forbearance makes sense when the borrower's recovery timeline is relatively short and credible, and when you can afford the temporary reduction in income.

Loan Modification

If the borrower's situation has changed permanently but they still want to keep the property and can make some level of payment, a loan modification that permanently changes the note terms might salvage the situation. This could involve reducing the interest rate, extending the term to lower the monthly payment, capitalizing the arrears by adding them to the principal balance, or some combination of these adjustments.

Modification preserves the note as a performing asset, but at terms that are less favorable than the original. Weigh the modified note's value against the alternatives before agreeing.

Deed in Lieu of Foreclosure

If the borrower cannot pay and does not want to go through foreclosure, a deed in lieu is a voluntary transfer of the property to you in exchange for your release of the borrower from the note obligation. This gives you the property without the cost and delay of foreclosure. The borrower avoids having a foreclosure on their record. Both parties benefit from a quicker, cleaner resolution.

Before accepting a deed in lieu, verify that there are no other liens on the property that would survive the transfer. A title search is essential — you do not want to take ownership only to discover that the property is encumbered by tax liens, mechanic's liens, or other claims.

Option 2: Sell the Note to a Professional Buyer

If working with the borrower is not feasible or not desirable, selling the defaulted note to a professional buyer gets you cash and transfers the problem to someone equipped to handle it.

How This Works

You contact a note buyer, provide the details of the note including the default status, and receive a cash offer. The buyer evaluates the note based on the property value, the LTV ratio, the severity of the default, the likelihood of resolution, and the estimated cost of foreclosure if that becomes necessary. If you accept the offer, the buyer conducts due diligence and closes the purchase, typically within two to four weeks.

After closing, you have your cash and the buyer owns the note. They handle whatever comes next — working out the borrower, foreclosing, or pursuing other remedies. Your involvement is over.

The Financial Trade-Off

You will receive less for a defaulted note than for a performing one. The discount reflects the buyer's cost of resolution, the time value of the delayed cash flows, and the risk that the outcome may be worse than expected. But compare that discounted price to your alternatives: the cost of foreclosure including legal fees, carrying costs, and property management; the time spent managing the process over months; the risk of property damage or further deterioration; and the emotional toll of an adversarial legal proceeding.

For many note holders, selling the defaulted note for a lower price is the better financial decision when all costs and risks are factored in. For a deeper analysis of selling versus foreclosing, see this comparison of selling your note vs. foreclosure in Texas.

Longhorn Note Buyers Purchases Defaulted Notes

Longhorn Note Buyers regularly purchases notes in various stages of default across Texas. With over $47 million in notes purchased and founder Nick McFadin's experience dating back to 1983, they have the expertise to evaluate defaulted notes accurately and the capital to close quickly. Their A+ BBB rating and 100 percent close rate mean you can trust the offer and the process. Contact them at (210) 828-3573 for a cash offer within 24 hours, even on a non-performing note.

Option 3: Foreclose on the Property

If workout negotiations fail and you prefer not to sell the note, foreclosure is the legal remedy that allows you to recover the property.

The Texas Non-Judicial Foreclosure Timeline

Texas non-judicial foreclosure is among the fastest in the country. After sending the required notice of default and allowing the cure period to expire, you post a notice of sale at least 21 days before the foreclosure date. The sale occurs on the first Tuesday of the month at the county courthouse. The trustee named in the deed of trust conducts the sale. From first missed payment to completed foreclosure, the typical timeline is approximately three to four months.

Costs and Considerations

Budget $3,000 to $7,000 in legal and trustee fees for a standard non-judicial foreclosure. Add property maintenance, tax, and insurance costs if the property is vacant or the borrower is not maintaining it. After the sale, if you are the winning bidder, you own the property and are responsible for its sale, which adds additional time and cost.

When Foreclosure Is the Best Choice

Foreclosure makes the most sense when the property has significant equity above the note balance, you have the resources and patience to pursue the legal process and manage the property, the borrower is uncooperative and voluntary solutions are not possible, and you believe the property's value exceeds what you would receive by selling the note. If these conditions are met, foreclosure can yield the highest total recovery, though at the cost of more time, money, and effort than the other options.

Option 4: Negotiate a Discounted Payoff

Some borrowers who cannot make monthly payments can scrape together a lump sum — from family, from another loan, from selling assets — to pay off the note at a discount. A discounted payoff satisfies the debt for less than the full amount owed, giving the borrower a clean slate and giving you cash without the hassle of foreclosure or a note sale.

The key is setting the right discount level. Compare the discounted payoff amount to what you would net from selling the note or foreclosing. If the borrower offers more than those alternatives would produce, the discounted payoff is your best bet. Document everything in writing and use a closing agent or attorney to ensure the satisfaction of the deed of trust is properly recorded.

Creating an Action Plan: A Step-by-Step Framework

Here is a practical framework for moving from "the borrower stopped paying" to a resolution.

Within the first week, contact the borrower, assess the situation, and review your documents. Within the first 30 days, check the property status including taxes, insurance, and condition, get a current estimate of the property's market value, and send the required written notice of default if the borrower has not cured.

Within 30 to 60 days, evaluate your options based on the borrower's response, your financial needs, and the property situation. Get a cash offer from a note buyer like Longhorn Note Buyers to establish the market value of the note in its current condition. Compare the note sale option to the workout, foreclosure, and discounted payoff alternatives.

Within 60 to 90 days, commit to a path and execute. If selling, accept an offer and close. If foreclosing, engage an attorney and begin the process. If working out, finalize the agreement with the borrower. The key is decisive action — delays only make the situation worse.

Ready to Explore Your Options?

If your borrower has stopped paying and you want to know what your note is worth on the open market — even in default — the first step is a phone call. Contact Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to get your free, no-obligation cash offer within 24 hours. Having a concrete number in hand gives you the baseline you need to compare all of your options and choose the path that makes the most sense for your situation.

Frequently Asked Questions

How many missed payments before I should take action?

You should take action after the first missed payment — starting with a phone call to the borrower. Do not wait for three, six, or twelve months of missed payments before responding. Early intervention gives you the most options and the best chance of a favorable resolution. The longer you wait, the more the borrower's arrearage grows, the more likely the property taxes and insurance fall behind, and the harder it becomes to recover the situation.

Can the borrower just give me the property instead of going through foreclosure?

Yes, through a deed in lieu of foreclosure. The borrower voluntarily transfers the property to you by executing and recording a deed. In exchange, you release the borrower from the remaining obligation under the note. This avoids the time and expense of foreclosure for both parties. Make sure a title search is done before accepting a deed in lieu to verify there are no other liens on the property.

What if the borrower has damaged or neglected the property?

Property damage or neglect reduces the collateral value and affects all of your options. If the property has been significantly damaged, the note's value — whether you sell it or foreclose — will be lower. Document the condition of the property as soon as you become aware of issues. If the borrower has intentionally damaged the property, you may have additional legal remedies, but pursuing them adds cost and time. In many cases, selling the note as-is and letting the buyer deal with the property condition is the most practical path forward.

Should I hire a lawyer right away?

Not necessarily. If the borrower is communicative and a workout seems possible, you may be able to resolve the situation without legal counsel, though having any written agreements reviewed by an attorney is advisable. If you are considering foreclosure, hiring a Texas foreclosure attorney early in the process ensures you follow the proper procedures and avoid costly mistakes. If you are considering selling the note, you generally do not need an attorney — the buyer handles the closing process.

What if I cannot reach the borrower at all?

An unreachable borrower limits your options to foreclosure or selling the note. You cannot negotiate a workout with someone who will not communicate. Send the required default notices to the borrower's last known address by certified mail as required by Texas law, and proceed with your chosen remedy. A note buyer can still purchase the note even if the borrower is unresponsive — in fact, this is a common scenario that experienced buyers are well-equipped to handle.