Foreclosure is the right tool when the collateral has real value and the goal is to get the property back or force a sale that covers the debt. But foreclosure is not always the best first move, and in some cases it is unavailable entirely.
When the collateral is worth little or nothing, when there is no real property securing the loan, or when the borrower has significant personal assets that make a judgment worth pursuing, suing directly on the note can be more effective than going through a foreclosure process that produces nothing.
What It Means to Sue on the Note
The promissory note is a contract, the borrower’s written promise to repay. When the borrower defaults, the creditor can file suit in Texas court to obtain a judgment for the full amount owed, plus interest and attorney fees if the note provides for them.
Once a judgment is obtained, the creditor has a powerful collection tool. A Texas judgment can be used to levy on the debtor’s bank accounts, garnish wages (with some limitations), lien non-exempt real property throughout the county where the judgment is abstracted, and pursue other collection mechanisms.
When We Recommend Suing on the Note Instead of Foreclosing
The collateral is underwater or worthless. If the property securing the loan is worth far less than the debt, a foreclosure sale produces nothing, and going directly for a judgment against the borrower personally, or against guarantors, may be the better play.
There is no real property collateral. Many promissory notes are unsecured or secured only by personal property. Foreclosure in the real estate sense is not an option, and the note is the only instrument.
The borrower has real assets. A debtor who has a business, income, or other real property may be worth suing even after a foreclosure. The deficiency judgment route after foreclosure works, but a direct suit on the note can be faster and more flexible.
The note is about to expire. Texas has a time limit for suing on a written contract. If that deadline is approaching, filing suit immediately is the right move rather than spending time on a foreclosure process.
Suing on the Note and Foreclosing
These are not mutually exclusive. In many cases we pursue both at once, filing the foreclosure on the real property collateral while also suing on the note to preserve and pursue the personal liability. The two tracks run in parallel, and the one that produces recovery first reduces what the other needs to collect.
Attorney Fees
Most Texas commercial promissory notes contain a provision allowing the holder to recover reasonable attorney fees if the note goes to litigation. This point is often overlooked: if your note contains that language, the cost of pursuing a judgment is partially offset by the right to recover those fees from the borrower as part of the judgment.
We review your note and advise you on what fee recovery language it contains before we begin. If the note provides for fees, we make sure the judgment we obtain reflects them.
In this section: Notes & Guaranties · Enforcing a Personal Guaranty
Frequently Asked Questions
How long do we have to sue on a Texas promissory note?
It depends on the note. Ordinary contract debt, and an action to foreclose a lien on real property, generally carry a four-year limitations period. But an action to enforce a negotiable promissory note payable at a definite time is governed by Section 3.118 of the Business and Commerce Code, which allows six years from the due date or, if the note has been accelerated, six years from the accelerated due date. The clock generally starts when the note matures or on the date of acceleration, and abandoning an acceleration may reset it. Do not assume the shorter period applies. A claim you believe is time-barred may still be alive, and we can check before you write it off.
Can we sue on the note and foreclose the property at the same time?
Yes, and in many cases this is the right strategy. Filing the foreclosure on the real property while simultaneously suing on the note preserves all remedies. The two tracks run in parallel. Whichever produces recovery first reduces what the other must collect.
What if there is no real property collateral at all, just a note?
Then the foreclosure option is not available and a direct suit on the note is your primary remedy. We file suit in the appropriate Texas court, pursue judgment, and then use the judgment to levy bank accounts, lien non-exempt real property, and pursue other collection remedies available under Texas law.
Does Texas allow us to recover attorney fees in a suit on a note?
Yes, if the note contains a provision for attorney fees upon default, which most well-drafted Texas commercial promissory notes do. The fee recovery provision must be in writing and the creditor must make a demand for the fees before filing suit under Texas Civil Practice and Remedies Code. We review the note for this provision and comply with the demand requirements before filing.