Collecting a Defaulted Promissory Note in Texas

By Hank FasthoffJuly 6, 2026

A missed payment doesn't establish the amount a creditor can collect or the procedure required to collect it. Before demanding the full balance, you must determine who can enforce the note, what became due, which notices the loan documents require, and which limitations period governs.

Texas law treats a negotiable promissory note differently from a nonnegotiable promise to pay. That classification affects the creditor's enforcement rights, the debtor's defenses, and the filing deadline. Separate rules govern guaranties and collateral.

Article 3 Classification

Section 3.104 of the Texas Business and Commerce Code defines a negotiable instrument. A promissory note meets that definition when it contains a signed, unconditional promise to pay a fixed amount of money, with or without interest or other charges described in the promise. The note must be payable to bearer or order on demand or at a definite time, and it may require only the additional undertakings that the statute permits.

Interest may vary without making the principal uncertain. Section 3.112 permits a fixed or variable amount or rate and allows the calculation to depend on information outside the note. You should distinguish a fixed principal obligation with a variable interest formula from an obligation whose principal amount can't be determined from the note.

Section 3.106 governs references to other records. A promise becomes conditional when the note states that payment is subject to or governed by another record, or that another record states rights or obligations concerning the promise. A reference alone doesn't make the promise conditional, and the note may refer to another record for rights involving collateral, prepayment, or acceleration.

The wording controls the result. A note stating that a security agreement secures payment doesn't become conditional merely because the creditor must read that agreement to enforce the collateral. A note stating that the payment obligation is subject to a credit agreement requires a different Article 3 analysis.

When a note falls outside Section 3.104, the creditor may enforce it as a contract if the document otherwise contains an enforceable payment obligation. The label on the first page doesn't control. You should classify the instrument from its operative terms before relying on Article 3 or selecting a limitations period.

Enforcement Rights

Ownership and enforcement status are different questions under Article 3. Section 3.301 recognizes a holder, a nonholder in possession who has a holder's rights, and a person outside possession who qualifies under Section 3.309 or Section 3.418(d). The third category includes certain lost instrument claims and rights that arise after recovery of a mistaken payment.

A person may qualify to enforce a note without owning it. Conversely, an assignee may own the economic interest and lack evidence of the possession, indorsement, transfer, or lost instrument facts required for enforcement.

Section 3.203 defines transfer as delivery for the purpose of providing enforcement rights to the recipient. You should review the original payee, each delivery, every indorsement or allonge, the current custodian, and the person who possessed the original when a claimed loss occurred. An allonge is a separate paper affixed to the note for an indorsement. An assignment may document ownership, but Article 3 may also require possession, an indorsement, transferred holder rights, or compliance with Section 3.309.

Payments after a transfer require the same care. Section 3.602 addresses when payment to a former person entitled to enforce discharges the obligation. Adequate notice of the transfer must identify the note, direct future payments to the transferee, and provide a payment address. If the borrower requests reasonable evidence of the transfer, the transferee must provide it before relying on the notice rule.

Elements of the Note Claim

A creditor seeking summary judgment must establish more than default. The Fifth Circuit applied the Texas elements in *In re Highland Capital Management, L.P.*, 116 F.4th 422, 430 (5th Cir. 2024). The movant must establish that the note exists, the borrower signed it, the movant is the legal holder, and a balance remains due.

Those elements require admissible evidence. You should assemble the executed note, all amendments, the payment ledger, interest rate records, notices, transfer documents, and collateral documents. A witness addressing the balance should separate principal, accrued interest, late charges, protective advances, credits, and attorney's fees.

Section 3.308 governs signatures and enforcement status. A signature is admitted unless the pleadings specifically deny its authenticity or authority. After a specific denial, the person claiming validity bears the burden, although the statute presumes authenticity and authority in most cases.

Loan documents may condition enforcement or acceleration on demand, notice, an opportunity to cure, certification, or another event. Texas Rule of Civil Procedure 54 permits a plaintiff to allege generally that all conditions precedent occurred. The plaintiff must establish only the conditions that the opposing party specifically denies, but the creditor should document compliance before filing.

Acceleration Requirements

A creditor generally has a claim for each missed installment. An optional acceleration clause permits the creditor to declare subsequent installments due after a specified default. The creditor must exercise that option under the loan documents and applicable Texas law.

Texas generally requires notice of intent to accelerate followed by notice of acceleration, unless the borrower effectively waived the applicable notice. Both notices must state the creditor's intent or action unequivocally. *Shumway v. Horizon Credit Corp.*, 801 S.W.2d 890, 893-94 (Tex. 1991), treated presentment, notice of intent to accelerate, and notice of acceleration as separate rights. The court required waiver language that specifically identified each surrendered right.

You should send the notice of intent first and provide the cure period required by the documents. If the borrower doesn't cure, the subsequent notice should state that the creditor has accelerated the note and identify the accelerated balance. A warning that acceleration may occur doesn't exercise the option.

Acceleration also sets accrual for installments that weren't yet due. *Holy Cross Church of God in Christ v. Wolf*, 44 S.W.3d 562, 566-68 (Tex. 2001), held that unequivocal notices established acceleration without an additional foreclosure step. The parties may subsequently abandon acceleration through agreement or conduct, so you should review every demand, payment request, reinstatement offer, and payment acceptance before calculating limitations.

For debt secured by a real property lien, Section 16.038 of the Texas Civil Practice and Remedies Code provides a statutory method for rescission or waiver of acceleration. The lienholder, servicer, or its attorney may send each debtor written notice before limitations expires. That method isn't exclusive, and the notice doesn't waive past defaults or prevent a subsequent acceleration.

Some notes permit acceleration at will or when the creditor considers repayment insecure. Section 1.309 permits that action only when the creditor believes in good faith that the prospect of payment or performance is impaired. The borrower bears the burden of establishing a lack of good faith.

Limitations Periods

The applicable deadline depends on the instrument and the remedy. You must classify the note, identify its payment terms, determine whether acceleration occurred, and separate a claim on the debt from foreclosure of a real property lien.

Section 3.118(a) requires an action to enforce a negotiable note payable at a definite time within six years after the due date or dates stated in the note. If the creditor accelerates a due date, the six year period runs from the accelerated due date. Each unaccelerated installment retains its stated due date.

A negotiable demand note follows Section 3.118(b). After the creditor demands payment, the creditor has six years to sue. Without a demand, the action becomes barred when neither principal nor interest has been paid for a continuous period of 10 years.

A nonnegotiable written promise to pay falls outside those Article 3 provisions. Section 16.004 generally provides four years for an action on a debt. Accrual depends on the contract, the default, and any valid acceleration.

Foreclosure of a real property lien has a separate deadline. Section 16.035 generally requires suit or a sale under a power of sale within four years after accrual. Subsection (f) states that Section 3.118 doesn't change that period. A creditor may therefore face one deadline for a negotiable note claim and another for enforcement of the deed of trust.

You should create a chronology that identifies each installment date, default, notice of intent, acceleration, rescission, maturity date, payment, extension, and proposed filing date. You should complete the limitations analysis when you open the collection file.

Holder in Due Course Status and Defenses

A holder and a holder in due course possess different rights. Section 3.302 requires a holder in due course to take the instrument for value, in good faith, and without the disqualifying notice or apparent irregularity listed in the statute. Notice that the instrument is overdue, dishonored, altered, subject to a claim, or subject to a defense may prevent that status.

Section 3.304 determines when an instrument is overdue. An installment note becomes overdue after a missed principal installment and remains overdue until the borrower cures the default. A missed interest payment alone doesn't make the instrument overdue unless the due date for principal has been accelerated.

Section 3.305 preserves specified defenses against a holder in due course. They include infancy to the extent it defeats a simple contract, duress, incapacity, or illegality that nullifies the obligation under other law. The section also includes fraud that prevented knowledge or a reasonable opportunity to learn the instrument's character or essential terms, and discharge in insolvency proceedings.

Subject to the statute's terms, a holder in due course takes free of simple contract defenses and claims in recoupment. A holder without that status faces those defenses. Failure of consideration, fraud in the inducement, payment, prior breach, and a qualifying recoupment claim may therefore defeat or reduce the claim. Those defenses remain available against the original payee and any other holder without holder in due course rights.

Alteration requires separate treatment under Section 3.407. A fraudulent alteration discharges a party whose obligation the change affected unless the party assented or is precluded from asserting it. A person who took the instrument for value, in good faith, and without notice of the alteration may enforce it according to its original terms, subject to the rule for unauthorized completion.

Another rule applies to consumer credit. The Federal Trade Commission's Holder Rule requires covered consumer credit contracts to preserve the consumer's claims and defenses against a subsequent holder. An ordinary business loan doesn't become a consumer credit contract merely because an individual signed a guaranty.

Guaranties and Collateral

A guaranty is a contractual obligation distinct from the borrower's note. You should review its scope, conditions, notice rights, waivers, caps, amendment provisions, collateral provisions, and limitations period. Describing the document as a continuing guaranty doesn't answer those questions.

A guaranty of payment commonly permits the creditor to proceed against the guarantor after the borrower's default without first exhausting remedies against the borrower. A guaranty of collection commonly conditions liability on collection efforts against the borrower. The signed language governs, and a creditor who skips a required condition may have an early motion for judgment denied.

Waivers require the same precision as acceleration provisions. Texas courts enforce many guaranty waivers, but they interpret each guaranty from the words the parties signed. You should identify each waived right and compare subsequent amendments, extensions, collateral releases, and payment arrangements with the guaranty's consent provisions.

Article 9 governs personal property collateral. An enforceable security interest depends on attachment, while a financing statement generally addresses perfection and public notice. Under Section 9.203, attachment generally requires value, the debtor's rights in the collateral, and an authenticated security agreement that describes the collateral, or one of the statute's alternatives involving possession or control.

After default, Section 9.601 provides cumulative rights under Article 9 and the security agreement. Section 9.609 permits repossession through judicial process or without judicial process if the secured party avoids a breach of the peace. Section 9.610 requires every aspect of a collateral disposition to be commercially reasonable, Section 9.611 may require notice, and Section 9.615 governs proceeds, surplus, and any deficiency.

Repossession alone doesn't reduce the debt. Disposition proceeds reduce the balance when applied under Section 9.615, while Section 9.620 permits acceptance in full or partial satisfaction when its conditions are met. You should analyze possession, notice, disposition, proceeds, surplus, deficiency, and acceptance as separate steps.

Original Note and Transfer Record

You should preserve the original note. Section 3.309 permits enforcement after loss when the claimant establishes the statutory entitlement, the instrument's terms, and the right to enforce it. A court may enter judgment only after finding that the borrower has adequate protection against another claim to enforce the same instrument.

The original simplifies evidence of possession, signatures, indorsements, and alterations. You should store it with a custody record and use a controlled process for inspection, transfer, and filing. A scanned copy supports document management but doesn't replace the showing Section 3.309 requires after loss.

Enforcement File

You should begin with the signed note and every document that affects it. The file should identify the person entitled to enforce, calculate the balance from source records, document each condition precedent, and include every required notice. It should also identify any acceleration or rescission and every limitations period for the debt, guaranty, and collateral.

You should evaluate collectibility before spending money to establish liability. Borrower assets, guarantor assets, existing liens, exemptions, pending lawsuits, tax liabilities, insider transfers, and bankruptcy risk affect whether a judgment produces payment. Strong documents support an efficient judgment, while available assets determine the creditor's recovery options.

A promissory note case succeeds when admissible evidence establishes the instrument, enforcement status, default, amount, notices, and timely filing. You should assemble that record before sending the first acceleration notice because the notice may determine the amount due and the final day to sue.