What is a “Notice of Default”?
A question we often hear from the people we work with is, “I received a Notice of Default letter–what does this mean?”
Well, according to Wikipedia, a “Notice of Default” is defined in the following way:
A notice of default is a notification given to a borrower stating that he or she has not made their payments by the predetermined deadline, or is otherwise in default on the mortgage contract. Other ways a borrower may be in default include not providing proper insurance coverage for the property, or not paying due property taxes as agreed. It dictates that if the money owed (plus an additional legal fee), or other breach(es) are not paid/remedied in a given time, the lender may choose to foreclose the borrower’s property. Any other people who may be affected by the foreclosure may also receive a copy of the notification.
Put simply, a Notice of Default is the first step in the foreclosure process. The lender is informing the borrower that they are (in most cases) late on their payments, and that if the situation isn’t corrected within a certain time frame, the wheels of the foreclosure process will be set into motion.
If you didn’t realize that you had fallen behind on your mortgage payments, finding a Notice of Default in your mailbox may come as a huge–and jarring–surprise to you. Even if you are indeed already aware that you have become late on your mortgage payments, receiving a Notice of Default from your lender is still likely to cause you great concern.
The good news is there is still plenty of time to take action and avoid foreclosure. You can catch up on your payments and the late fees, you could sell your house quickly, or you could explore a short sale. For some people, falling behind on payments is simply a mistake or an accident, and rectifying the situation is as easy as making the needed payments. For most others, though, the Notice of Default is a result of the borrower having an increasingly difficult time making ends meet financially. In this case, making catch-up payments may not be a realistic option, and other avenues may need to be pursued.