Contributor: Transactional Attorney
Peter makes an excellent point that the first step should be to find out what is actually happening first. Just because your note/security agreement allow you to accelerate the note or go after the collateral/take back the business doesn't mean that you necessarily want to do that.
If the missed payment is just a temporary bump in the road it's typically to your advantage to try to work with the buyer rather than forcing the issue.
It's important, however, to speak with your legal counsel before speaking with the buyer, as the way you communicate with the buyer can potentially hurt you legally down the line. For example, if you reach out to the buyer and offer to work things out (which seems like a reasonable approach) you may be setting yourself up if the buyer can't or won't work with you and then later says you've waived your right to accelerate or given them additional time to cure the default. Your counsel can explain how to communicate with the buyer without giving up your rights.
Your note/security agreement also likely have very specific provisions as to how you must contact the buyer regarding a default and the time the buyer has to resolve (cure) the default. If you don't follow those provisions you'll leave the buyer an opportunity to fight your claims once you move forward.
If despite your efforts the buyer still can't or won't perform, you may have no other choice but to proceed to take back the collateral that is securing your note. Note that doesn't necessarily mean taking back the whole business. For example, if you have a small balance left on your note and there are assets that can cover that amount, you may be able to put the buyer in a position where they voluntarily sell (or give you to sell) assets sufficient to cover the outstanding balance.
In California, the process is largely governed by both the provisions of your note and security agreement and the Uniform Commercial Code.
If the business has few or no outstanding liabilities other than your note, you may be able to simply agree with the buyer that you will write off the balance of the note in exchange for the buyer handing over the business. While this sounds like an easy solution, it can, however, potentially open you up to liability for any obligations the buyer has incurred while they owned the business under what's known as "successor liability".
If the buyer has incurred debt, faces tax or payroll issues, has claims against the business, etc. a safer way to approach taking the business assets back may be through a foreclosure sale. Depending on the nature of the business and assets you may be able to hold a sale privately or you may have to hold a public sale.
The process to hold a public sale includes notices published in area newspapers and requires advance planning and notice. You'll typically work with an independent company who can place the notice ads for you, handle inquiries generated, hold the sale on the day you schedule it for, and provide the documentation of the sale once it's over.
Most sellers will be bidding at the sale with the balance of the note. For example, if you're owed $100,000 on the note, you have the equivalent of a $100,000 bid at the foreclosure auction. It's possible that you'll be bidding against other public bidders so it's important to carefully consider how much you'll need to bid to secure the assets at the auction.
Finally, if you are the successful bidder it's very important to handle your acquisition of the assets carefully to ensure that you're not connected with the previous ownership and their obligations. You will need to enter into new agreements with employees, customers, suppliers and vendors and you'll also need to make sure your corporate structure, DBA, business licenses, etc. reflect your new ownership of your old business properly.