Notice of Default: Your Guide to Stopping Foreclosure

A notice of default is your mortgage lender’s way of saying time is running out. You’ve missed several payments. Now you have one last chance to act before foreclosure begins.

Once you receive this notice, you need to move quickly. Understanding what’s in the notice and knowing your options can help you save your home or minimize the damage to your finances.

What Is a Notice of Default?

A notice of default is a formal letter your mortgage company sends after missed payments. The lender files it with your local property records office. That makes it public record.

You’ll usually get a copy by mail. In some states, it may be posted at your home. Some counties publish it on their website or in a newspaper.

The notice includes several key details:

• Your name and address
• The lender’s contact information
• The property address and description
• The total amount you owe
• The deadline to catch up on payments
• What happens if you don’t pay

Getting a notice of default means your home is officially in pre-foreclosure. If you don’t take action by the deadline, the lender can start foreclosure proceedings. Since the notice is public, it can also hurt your credit score.

Your Final Warning Before Foreclosure

A notice of default is not a foreclosure. It’s a warning that foreclosure is coming if you don’t act.

The next step for your lender is to begin the foreclosure process. Depending on state law, you may have as little as a few weeks. You need to resolve your outstanding balance to avoid losing your home.

How Notice of Default Relates to Nonjudicial Foreclosure

The foreclosure process varies by state. If you’ve received a notice of default, you likely live in a state that follows nonjudicial foreclosure. You probably signed a mortgage loan with a power of sale clause.

Nonjudicial foreclosures are allowed in these states:

• Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia (sometimes), Georgia, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico (sometimes), North Carolina, Oklahoma (unless you request judicial), Oregon, Rhode Island, South Dakota (unless you request judicial), Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming

Under this process, the mortgage servicer reports your default to your county recorder’s office. The servicer must also meet certain requirements before proceeding with a foreclosure sale. But the lender won’t need to file a formal lawsuit before moving forward.

Foreclosure processes that require a formal lawsuit are known as judicial foreclosures.

How to Stop a Foreclosure Sale

Once the notice is filed, the mortgage servicer must give you time to pursue options. You must submit a loss mitigation application to your servicer.

The servicer then has to tell you your options. These may include:

• Executing a deed in lieu of foreclosure
• Negotiating a loan modification
• Seeking forbearance
• Pursuing a short sale

Federal law requires this loss mitigation period. If you don’t submit an application within 120 days of default, the mortgage lender can schedule a foreclosure sale.

How to Avoid Foreclosure and Keep Your Home

If you don’t bring your mortgage current after receiving a notice of default, the next step is a notice of sale. Your home gets scheduled for public auction.

Sometimes a buyer places the highest bid. If not, the lender may take back the property and resell it.

Even after receiving a notice of default, you may still have time. The most direct option is to pay the full past-due amount. In many states, you must do this before the auction.

Some states have a redemption period. You get extra time, even after the sale, to pay what you owe and keep your home.

Payment Alternatives

If paying the full amount isn’t possible, your mortgage servicer may offer alternatives. Common options include:

• Refinancing: Taking out a new loan to pay off the old one
• Loan modification: Changing your loan terms to make payments more affordable or adding missed payments to the end
• Reinstatement: Paying the overdue balance and resuming regular payments as if you were never behind

The availability of these options depends on how much time has passed. Your loan agreement and state laws also matter.

In recent years, federal rules have improved protections for homeowners facing foreclosure.

Contact your mortgage servicer as soon as possible. Many homeowners also talk to a HUD-approved housing counselor or foreclosure attorney. Understanding your rights can help you make better decisions. Acting quickly makes a big difference.

If You Can’t Keep Your Home

Maybe you’ve decided it’s best to walk away from your mortgage. You could work with a real estate agent to sell your property.

But understand that selling may be more difficult under these circumstances. Since time matters, you might have to sell for less than what you owe. That’s known as a short sale.

Deed in Lieu of Foreclosure

You might have the option of executing a deed in lieu of foreclosure. You sign over your rights in the property to the mortgage company.

A deed in lieu allows you to avoid the public record and negative credit impact of a foreclosure.

File for Bankruptcy

Another option to avoid foreclosure is filing for bankruptcy. Bankruptcy creates an automatic stay. The stay temporarily stops the foreclosure process.

Bankruptcy doesn’t erase your mortgage debt. But it can give you time to figure out your next move.

Keep in mind, the lender can ask the court to lift the stay. The lender may continue with foreclosure, especially if you’re not making payments.

Filing for bankruptcy doesn’t cancel your responsibility to pay the mortgage. If you can’t make payments, the court may allow the lender to move forward.

But if you file for Chapter 13 bankruptcy, you may be able to catch up on missed payments. You would do this through a repayment plan. Chapter 13 is often enough to stop the foreclosure if you stick to the plan.

If you’re facing foreclosure, speak with a bankruptcy attorney for free to understand all your options.

Taking Action After Receiving a Notice of Default

A notice of default is serious. But it’s not the end of the road.

The notice usually comes by mail or may be posted on your property. It includes details about your home, how much you owe, and what could happen next. It’s your final warning before foreclosure begins.

If you get one, don’t panic. You may still have options. Federal law requires mortgage companies to explain your alternatives and work with you if possible.

In some cases, you can stop the foreclosure by selling the home. Or you can sign it over to the lender through a deed in lieu. These options may help you avoid the damage a foreclosure can do to your credit. In some cases, you might even walk away with some equity.

Whatever you decide, act quickly. The sooner you respond, the more options you’ll have available.