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A demand letter from an attorney notifies an individual to settle a matter before legal action is pursued. It is sent by an attorney representing a client, often demanding payment or correction of contract violations. The video discusses the significance of demand letters, which can be utilized by anyone facing a legal dispute. They serve to document the demand in writing, explain the reasons behind it, provide a deadline for resolution, and warn of potential legal consequences if unresolved. Additionally, they help record the demand for use as evidence if the situation escalates to court. The video also mentions where to find an official free template for demand letters.