Knowing when to send a demand letter can be tricky because the form and content for them generally vary from one state to the next. Some states even have requirements that the customer must be notified that they have the right to seek credit counseling. You should consult with you an attorney for specific state requirements.
That point aside, my company generally issues a Notice of Intent and Right to Accelerate letter when the customer's loan becomes 45-60 days past due. Each account should be looked at individually prior to a notice going out. You may have one customer who you might extend their account to a much later delinqeuency level based on their circumstances. On the other hand, you may have a chronically delinquent customer, who does not pay until they receive a Notice of Intent. In that case, you will want to issue the letter once the account is 30 days past due (2 payments).
Once our Notice of Intent letter expires without the loan being reinstated, the account is referred to outside counsel to initiate foreclosure/legal activity.
Collection strategies should be well thought out and should be tailored to the type of loan portfolio you are servicing.