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 you demand the full balance, you must determine who can enforce the note, what became due, which notices your 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 time allowed to file suit. A creditor enforces collateral and guaranties through separate rights and separate proof.

Determine Whether Article 3 Applies

Section 3.104 of the Texas Business and Commerce Code defines a negotiable instrument. A promissory note satisfies 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, and is payable to bearer or order on demand or at a definite time. The note can't require another undertaking from the borrower except one the statute permits.

Interest doesn't have to remain constant. Section 3.112 permits a note to state interest as a fixed or variable amount or rate and allows the rate to depend on information outside the instrument. You should distinguish a fixed principal obligation with a variable interest formula from a payment obligation whose principal can't be determined from the note.

Section 3.106 supplies the rule for references to other documents. It treats a promise as conditional when the note states that payment is subject to or governed by another record. A reference to another record, standing alone, leaves the promise unconditional. The parties can also refer to another record for rights involving collateral, prepayment, or acceleration without losing negotiability.

That distinction turns on the words the parties used. A note stating that it's secured by a security agreement doesn't become conditional merely because the creditor must read the security agreement to enforce the collateral. A note stating that the payment obligation is subject to the credit agreement presents a different Article 3 analysis.

If the note fails Section 3.104, the creditor can enforce it as a contract if the document otherwise creates an enforceable payment obligation. The label on the first page doesn't control. You should classify the instrument from its operative terms before invoking Article 3 or selecting a limitations period.

Identify the Person Entitled to Enforce

Ownership and enforcement status are different questions under Article 3. Section 3.301 recognizes three categories of people entitled to enforce an instrument. They include a holder, a nonholder in possession who possesses a holder's rights, and a person entitled to enforce a lost, destroyed, or stolen instrument under Section 3.309.

A plaintiff can qualify as a person entitled to enforce even without ownership of the note. An assignee who owns the economic interest can fail to prove enforcement rights if the evidence doesn't establish possession, the required indorsements, transferred holder rights, or the lost note requirements.

You should examine every transfer before filing suit. Your enforcement record should identify the original payee, each transfer, every indorsement or allonge, the present custodian, and the person who possessed the original when the claim arose. You can't establish every element under Sections 3.203 and 3.301 through a generic assignment of loan documents.

Payment history after a transfer also requires attention. Section 3.602 addresses when payment to a former person entitled to enforce discharges the obligation, including the effect of adequate notice directing subsequent payments to a transferee. You should credit every payment that legally discharged part of the note.

Prove the Note Claim

A creditor seeking judgment must prove more than default. Texas courts stated the elements as the note's existence, the borrower's signature, the plaintiff's status as legal holder, and a balance due and owing. The Fifth Circuit applied that formulation under Texas law in *In re Highland Capital Management, L.P.*, Nos. 23-10911 and 23-10921 (5th Cir. Sept. 16, 2024).

Those elements require competent evidence. You should assemble the executed note, all amendments, the payment ledger, rate change records, notices, transfer documents, collateral documents, and a witness who can explain the balance. The witness should separate principal, accrued interest, late charges, protective advances, credits, and attorney's fees rather than state one unsupported payoff number.

Section 3.308 governs proof of signatures and enforcement status. Unless the pleadings specifically deny a signature, the signature is admitted. A specific denial places the burden of proving validity on the party claiming under the signature, although the statute provides a presumption of authenticity and authorization in most cases.

Conditions precedent receive separate treatment. If the note or another controlling loan document requires demand, notice, an opportunity to cure, certification, or another event before suit or acceleration, the creditor must prove compliance or an effective waiver. A complete note file often supports summary judgment, but the creditor must supply the evidence each element requires.

Accelerate the Debt Correctly

When an installment becomes due, the creditor obtains a claim for that payment. An optional acceleration clause allows the creditor to declare subsequent installments due after a specified default. The creditor must exercise that option through the procedure required by the documents and Texas law.

Texas requires notice of intent to accelerate and notice of acceleration when the creditor exercises an optional acceleration clause, unless the borrower effectively waived the applicable notice. Each notice must state the creditor's intent and action unequivocally. *Shumway v. Horizon Credit Corp.*, 801 S.W.2d 890 (Tex. 1991), treated presentment, notice of intent to accelerate, and notice of acceleration as distinct rights and required waiver language specific enough to cover the right at issue.

You should send the notice of intent first and provide the contractually required cure period. If the borrower fails to cure, the subsequent notice should state that the creditor has accelerated the note and identify the accelerated balance. A threat that acceleration could occur doesn't establish that it occurred.

Acceleration also determines accrual for the accelerated installments. *Holy Cross Church of God in Christ v. Wolf*, 44 S.W.3d 562 (Tex. 2001), held that unequivocal notices established acceleration without requiring the creditor to take an additional foreclosure step. The parties can subsequently rescind or abandon acceleration, so you should review every demand, payment request, reinstatement offer, and rescission notice before calculating limitations.

Some notes let the creditor accelerate at will or whenever it considers repayment doubtful. Section 1.309 governs that type of insecurity clause. The creditor can exercise that power only when it 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. A clause tied to an objective payment default presents a different question.

Apply the Correct Limitations Period

Many promissory note summaries state a four year limitations period and stop there. 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 the due date, the six year period runs from the accelerated due date. Without acceleration, each installment has its stated due date.

A negotiable demand note follows Section 3.118(b). Once the creditor demands payment, the creditor has six years to sue. If no demand occurs, an action is 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 rules. Section 16.004 of the Texas Civil Practice and Remedies Code provides a four year period for an action on a debt. Accrual depends on the contract, the default, and any valid acceleration.

A different limitations rule applies to foreclosure of a real property lien. Section 16.035 requires suit to recover real property under a lien or foreclosure of the lien within four years after accrual, and subsection (f) states that Section 3.118 doesn't alter that period. A creditor can therefore face one deadline for a claim on a negotiable note and another for enforcement of the deed of trust.

You shouldn't choose a filing date from the shortest summary you find or assume the longest period applies to every remedy. You should create a chronology showing each installment date, default, notice of intent, acceleration, rescission, maturity date, payment, extension, and proposed filing date. You should run the limitations analysis when you open the collection file.

Analyze 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 notices and apparent irregularities identified in the statute. Transfer after default, knowledge of defenses, suspicious alterations, or acquisition outside ordinary operations can defeat that status.

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, fraud that prevented knowledge or a reasonable opportunity to learn the instrument's character or essential terms, and discharge in insolvency proceedings.

A holder in due course takes free of the simple contract defenses described in Section 3.305(a)(2) and claims in recoupment described in subsection (a)(3), subject to the statute's terms. A holder without that status faces those defenses. Failure of consideration, fraud in the inducement, payment, prior breach, and a qualifying recoupment claim can therefore control a suit brought by the original payee or another holder who lacks holder in due course rights.

Alteration requires a separate analysis under Section 3.407. A fraudulent alteration discharges a party whose obligation the alteration 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 can enforce the instrument according to its original terms, subject to the rule for an unauthorized completion.

Consumer credit requires another layer. The Federal Trade Commission's holder rule requires specified seller arranged consumer credit contracts to preserve the consumer's claims and defenses against a subsequent holder. The rule doesn't govern an ordinary business loan merely because an individual signed a guaranty.

Enforce Guaranties and Collateral Separately

A guaranty creates a contractual obligation distinct from the borrower's note. You should read the guaranty for its scope, conditions, notice rights, waivers, caps, amendment provisions, collateral provisions, and governing limitations period. Calling the document 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 the guarantor's liability on collection efforts against the borrower. The operative language controls, and a creditor who skips a required condition can lose an early motion for judgment.

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

Collateral doesn't satisfy the debt until the creditor receives value and credits it under the governing documents and law. For personal property, Article 9 governs attachment, perfection, priority, and disposition. Filing a financing statement provides public notice, but the debtor must separately grant an enforceable security interest.

After default, Section 9.601 provides cumulative rights subject to the security agreement and Article 9. Any disposition of collateral must satisfy Section 9.610, including its commercial reasonableness requirement. Notice, application of proceeds, surplus, deficiency, and acceptance of collateral each require their own statutory analysis.

Preserve the Original and the Transfer Record

You should preserve the original note, but loss doesn't automatically defeat enforcement. Section 3.309 allows enforcement when the claimant proves the statutory entitlement, the terms of the instrument, and the right to enforce it. The court must also find that the obligor receives adequate protection against a second enforcement claim on the same instrument.

The original can simplify proof 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 proof Section 3.309 requires after loss.

Build the Enforcement File Before Filing

You should begin with the signed note and every document that affects it. You should identify the person entitled to enforce, calculate the balance from source records, confirm each condition precedent, send the required notices, determine whether acceleration occurred, and calendar every limitations period that applies to the debt, guaranty, and collateral.

You should also evaluate collectibility before spending money to establish liability. Borrower assets, guarantor assets, existing liens, exemptions, pending lawsuits, tax liabilities, transfers to insiders, and bankruptcy risk determine whether a judgment produces payment. Strong documents can produce an efficient judgment, but a debtor without reachable assets won't pay it.

A promissory note case succeeds when the creditor proves the instrument, enforcement status, default, amount, notices, and timely filing with admissible evidence. You should prepare that record before the demand leaves your office because the first acceleration notice can determine the amount due and the last day to sue.