When debtor is unable to pay the debt in full upon maturity, the debtor may attempt unilaterally to renew and extend the note by continuing to make installment payments upon the same intervals and in the same amounts as were made prior to maturity. Sometimes a debtor may attempt to make partial payments after maturity. The Bank must consider whether to accept such payments made after maturity.
The Bank may accept such payments after maturity, if the Bank is negotiating a renewal and extension with debtor, or if the Bank has not determined which remedy to exercise with respect to the default. Acceptance of such post-maturity installment payments is not without risk because it gives credence to an argument by the debtor that the Bank agreed to a renewal and extension of the debt. Furthermore, the Bank places itself in a position of appearing to waive a default and could be inadvertently establishing a course of conduct or a reasonable expectation in the debtor’s mind that the Bank will continue to waive such a default.
If the Bank has previously accepted installment payments after maturity of the debt and decides to pursue foreclosure, the Bank must take action to rectify the implications of its earlier acceptance, prior to or at the time that notice of default is sent to debtor. The Bank could refuse to accept any further payments, notify the debtor in writing of such action, demand that the debtor strictly comply with the terms of the note, and return to the debtor any payments made after such notice is given. Alternatively, the Bank could notify the borrower, in writing, that acceptance of payments does not dure the default and the Bank will proceed with collection. Consult Bank counsel to determine your course of action.
After demand is given, the Bank should decide whether to judicially or nonjudicially foreclose on the property or take any of the alternative actions.