question When to send a notice of default?

[Embrand]

I have a Domain Name Holding transaction at Escrow.com, where I am the seller. The buyer is now late with a monthly payment. This is what Escrow.com's terms say:

"If Buyer fails to make a payment due under the Payment
Schedule, Seller may declare a default by sending Buyer a notice of default. Such
notice of default shall also be sent in writing to the Escrow Agent. If the Buyer
fails to cure the default within five (5) business days following such notice, Seller
shall have the right to notify the Escrow Agent (with a copy to Buyer) of such
failure and demand delivery of the Escrow Items. If the Buyer makes a partial
payment during the curing period, the Escrow Agent will not disburse payment to
the Seller until the full amount due has been received. Any partial payment will be
refunded to the Buyer if the full amount due is not received within the cure period.
Escrow Agent shall deliver the Escrow Items to Seller within five (5) business days
after the default cure period has passed."

I wonder after how many days it would be appropriate to send such a notice of default?

 

[fka1080405]

If I remember Escrow.com's lease-to-own agreement correctly, I believe a payment is missed if it is not made by the due date. You could issue a default notice the next day. That said, I think the right number of days depends on your goal. Do you want to get the domain back? Are you deep into the agreement? Does the buyer have the domain set up as part of their business? Do you want to maximise potential earnings?

Personally, I would give a lease-to-own buyer as much leeway as possible because, unlike most businesses, there is no cost to us to maintain a lease and there is a clear path to recovering the asset. If I were to give the buyer, say, 60 days to make payment, and they fail, they're now 3 payments behind (which would be very bad for most businesses) but I've still lost nothing because the domain wouldn't be making money if it was back in my possession. If I allow them to get 1, 2 or 3 payments behind, I stand to gain the missed payments and whatever else I'll earn through the remainder of the lease. Even if there is just a 10% chance of them coming out of default, it is likely worth it vs. terminating.

Therefore, I think the optimal answer (from a making money perspective) is to allow the lease to continue until you become confident that the buyer is defaulting on purpose. Once you have confirmation the buyer has no intention to continue making payments (e.g: they tell you, or there is clear evidence the business has shut down) then you have no financial upside to continuing the lease.

I think it is also worth considering the stage that the lease is at, e.g: if it is a new lease then it is quite possible that any aggressive use of the agreement's terms could discourage the buyer from continuing the lease long term. The buyer could choose to bring the agreement out of default but in parallel start planning to switch away from the domain so they can terminate the lease.

 

[Embrand]

If I remember Escrow.com's lease-to-own agreement correctly, I believe a payment is missed if it is not made by the due date. You could issue a default notice the next day. That said, I think the right number of days depends on your goal. Do you want to get the domain back? Are you deep into the agreement? Does the buyer have the domain set up as part of their business? Do you want to maximise potential earnings?

Personally, I would give a lease-to-own buyer as much leeway as possible because, unlike most businesses, there is no cost to us to maintain a lease and there is a clear path to recovering the asset. If I were to give the buyer, say, 60 days to make payment, and they fail, they're now 3 payments behind (which would be very bad for most businesses) but I've still lost nothing because the domain wouldn't be making money if it was back in my possession. If I allow them to get 1, 2 or 3 payments behind, I stand to gain the missed payments and whatever else I'll earn through the remainder of the lease. Even if there is just a 10% chance of them coming out of default, it is likely worth it vs. terminating.

Therefore, I think the optimal answer (from a making money perspective) is to allow the lease to continue until you become confident that the buyer is defaulting on purpose. Once you have confirmation the buyer has no intention to continue making payments (e.g: they tell you, or there is clear evidence the business has shut down) then you have no financial upside to continuing the lease.

I think it is also worth considering the stage that the lease is at, e.g: if it is a new lease then it is quite possible that any aggressive use of the agreement's terms could discourage the buyer from continuing the lease long term. The buyer could choose to bring the agreement out of default but in parallel start planning to switch away from the domain so they can terminate the lease.

Thanks. Some good input. It is a quite new LTO, and the buyer paid a pretty large down payment, so I do think they will continue to pay. I would definitely also prefer that the transaction continues.

I just wondered if there is a "standard" amount of days before you send a notice to the buyer, but I guess there is not.

 

[jberryhill]

I wonder after how many days it would be appropriate to send such a notice of default?

As noted above, it depends on what you want to accomplish. Do you want to (a) encourage the buyer to make the payment or do you (b) want the domain name back to, perhaps, renegotiate the terms or sell it to someone else?

If you are primarily interested in getting the buyer to pay, then you can reach out to them informally and ask if they forgot or need more time or whatever, and then decide whether to issue a notice of default on the basis of whatever their response, if any, might be.

I have one client with a substantial escrow.com holding deal, and the buyer is late every single month, and the seller issues a notice of default every single month. After that notice, the buyer pays exactly on the default cure period deadline. There are some people who treat extensions as the "real deadline" in these things. So, you simply could have a buyer whose attitude is that they don't "really" have to pay until you give notice, and then they have five days.

You should also take a look at the terms to figure out exactly what is the manner in which notice is to be given.

 

[Embrand]

As noted above, it depends on what you want to accomplish. Do you want to (a) encourage the buyer to make the payment or do you (b) want the domain name back to, perhaps, renegotiate the terms or sell it to someone else?

If you are primarily interested in getting the buyer to pay, then you can reach out to them informally and ask if they forgot or need more time or whatever, and then decide whether to issue a notice of default on the basis of whatever their response, if any, might be.

I have one client with a substantial escrow.com holding deal, and the buyer is late every single month, and the seller issues a notice of default every single month. After that notice, the buyer pays exactly on the default cure period deadline. There are some people who treat extensions as the "real deadline" in these things. So, you simply could have a buyer whose attitude is that they don't "really" have to pay until you give notice, and then they have five days.

You should also take a look at the terms to figure out exactly what is the manner in which notice is to be given.

Thanks. My goal is definitely "a". So I guess it would be good to informally reach out to the buyer first and then take it from there.

I recall your transaction is worth eight figures, so I find it amazing the buyer dares to be late every single time...

 

[Bravo Mod Team]

Personally, I send reminders until they're about to be two months late, and then on the second missed payment, I begin the cure period.

 

[Embrand]

Personally, I send reminders until they're about to be two months late, and then on the second missed payment, I begin the cure period.

Interesting, thanks.