When a customer sells collateral for a loan and the proceeds are applied to the loan, should that loan payment bump the next payment due date?

I was thinking that, as long as whatever collateral is left on the loan is properly structured, the sale proceeds should not bump the payment date (or possibly bump one payment date if the payments are monthly).

Otherwise, the sale proceeds payment will likely bump the next due date several payments ahead, and the customer won't have anything "due" for quite some time. That's just how I see things, though and am not aware of anywhere that a "proper" way to handle this is stated in regs, call report, etc. But, if someone can point me towards that resource I would be very grateful. Thanks!

It all comes down to your legal agreement.

How do most banks handle this in their legal agreements? I imagine if it's not specified, the bank would have the option to either bump the payment date, or not bump it?

Purely a bank decision. Our credit administrator makes the decision on how those would be handled. More often than not, large payments from sale of collateral are applied as a principal reduction and do not change the payment terms on the loan unless the loan is then modified. Our Promissory Notes state in the 'prepayment' section that 'early payments will not, unless agreed to by Lender in writing, relieve the Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due.'

As Randy stated, your legal contract is what you have to look to. The promissory note from your LOS is your contract.