What is a Notice of Default? What to do After Receiving a Notice of Mortgage Default
By definition, a Notice of Default is the letter that is filed by the lender against the borrower when they fail to pay their monthly mortgage obligations, even after being given a grace period to repay delinquencies. It is filed in the public records department where the property is located. This will jumpstart the foreclosure procedures, where lenders seize the property held in the mortgage.
In some states, for example in California, the Notice of Default is usually issued when the borrower is over 60 days late. When this happens, a 90-day period shall be given to the borrower to catch up with their delinquencies and file for reinstatement. A Borrower’s failure to do so will prompt the lender to initiate the notice of default by filing and publishing it in the local newspaper for 20 days. After which, the property will be put up for sale on its fair market value, either by judicial foreclosure or by power of sale to a trustee. The money raised will be used to pay the lender the outstanding principal balance of the loan. If there is still enough to pay the liens and other debts, they too will have their fair share. However, if nobody buys the property, the trustee will transfer it to the lender.
A notice of default officially starts the foreclosure process. At this time it is important to really be proactive in your efforts to save your home. The clock is ticking so to speak, and its very important that you contact your lender as soon as possible to try and work something out. Even if you cannot afford to repay the amount you are delinquent, most banks will have additional options available to you. The bank doesn't want to sell your home, but you need to speak to them as soon as possible to devise a plan to get you back on track.
Please keep in mind that during this time you may be contacted by numerous companies offering you their "help". It's important to be aware of loan modification scams and fraudulent companies. They know that a homeowner who has just been served with a notice of default may be more vulnerable to their tactics. A common foreclosure scam these companies use is when they ask you to transfer your property over to them and they will allow you to rent it from them until you can repay the debt owed. Do not fall for this! More often than not they will strip all the equity left in your home, and you will be left with nothing.
If you need to speak with a professional about your situation, consider contacting a HUD Counselor at (800) 569-4287 or visit our government foreclosure help page for more resources that may be available to you.
