What Is a Notice of Default?

Notice of default is a public notice filed with a court stating that a mortgage borrower is in default on a loan. This is one of the first steps toward foreclosure.

Notice of Default Explained

A notice of default is a serious action taken by a lender to notify a borrower that their delinquent mortgage payments have breached the contractual limit detailed in their mortgage loan. Some lenders may serve a notice of intention to levy or provide warnings to the borrower which gives them time to negotiate. In some cases, the notice of default filing may also include a negotiation grace period before further action is taken. In other cases, the notice of default may be the final notification that action is being taken towards foreclosure.

If a borrower has several delinquent payments then they are at risk of default on a mortgage loan which also poses the risk of lost collateral. In a mortgage contract, a lender will detail the number of delinquent payments allowed before default action is taken. Generally, most contracts will allow up to 180 days of missed payments and delinquencies before taking notice of default action.

Notice of Default and Subsequent Actions

A notice of default is typically the final action a lender will take before moving to activate the lien and seize the collateral for foreclosure. A notice of default is usually filed with the state court in which the lien has been recorded.

A notice of default filing is the first step in the court process. It typically initiates the legal proceedings towards foreclosure. A hearing to activate the perfected lien recorded with the mortgage closing is usually the next step. Some cases may allow time for the borrower to negotiate by potentially paying delinquent debt or suggesting a settlement.

If the case proceeds to approval of the perfected property lien then the lender can receive authorization to notify the borrower that the lien has been activated. Once the lien has been activated and a court order has been given for property seizure, the lender can take legal action to request the borrower vacate the property. All of these actions are the final steps in a loan foreclosure which is closed when the lender officially writes off the loan and has the authority to sell the property for the proceeds.

A notice of default and subsequent foreclosure actions will be documented and reported to credit bureaus. Thus, all foreclosure proceedings and actions can have serious repercussions on a borrower’s credit score. This will also reduce the borrower’s ability to obtain a mortgage or any type of debt in the future.