Notice of Default or Foreclosure Notice
Notice of Default or Foreclosure is a notification given to a borrower that he or she has not made their payments by the deadline. It says if the money owed (plus penalties) is not paid in a given time, the lender may choose to foreclose the borrower’s property. Any other people whom may be affected by the foreclosure may also receive a copy of the notification.
A Notice of Default or Foreclosure Notice is often seen as a reminder that the debtor has failed to pay according to the terms and conditions that he or she agreed to upon receiving the loan. It is possible that the notice of default be accompanied by a grace period, which allows debtors to avoid possible litigation issues with the lender. However, it is also possible that the notice of default with a grace period carries with it penalties or other fines. It is also possible to accumulate additional interest in the event of a payment default.
The foreclosure process doesn’t officially begin until you receive a notice of default, or a foreclosure notice. With this notice your lender is already making plans and taking the necessary steps to foreclose. Most lenders consider your loan to be in default once you are 90 days behind. Some lenders will send a letter that say they “intend to foreclose”, which is their way of saying that unless you contact us and come up with some money, we’re going to send the real notice in about 15- 30 days.
If you have received a notice of default or foreclosure notice from your lender then you are behind on your mortgage payments. In most states if the payments aren’t made, the lender will file a “notice of default” with a local courthouse and send you a letter saying that the foreclosure process will start unless you make good the missing payments.
How quickly the notice is filed at the courthouse depends on the individual lender. Some hold off if you contact them to work out a payment plan or short sale. Others are more aggressive and start the process as soon as possible to try to protect their investment.
Usually, this notice means that the amount you owe has shot up as well, since the lender typically adds substantial fees to cover its legal costs.
Once you reach the notice of default stage it’s a whole different ball game. Your options are fewer.
The notice of default is generally picked up by the credit bureaus, further depressing your credit score and making refinancing the loan extremely difficult.
Be aware of scam artists. The notice of default will tip off scam artists that you’re in trouble and the fact that you may be vulnerable to various “equity skimming” schemes. One common ploy: The scam artist promises to take over your payments, but instead rents out your house and keeps the rent payments as pure profit. The home goes into foreclosure, your credit is trashed and you’ve lost any equity you had in the home.
Notice of sale
Borrowers typically have 30-90 days from the notice of default or foreclosure notice to make up the deficit before the lender sends out a “notice of sale,” which sets a sale date for the house (typically within the next 15 to 30 days).
Some lenders will allow you to keep your original loan if you can make up the missing payments plus any late fees and legal charges. Others will insist you refinance with another lender. You can also halt the foreclosure, at least temporarily, by filing a lawsuit or filing for bankruptcy. For either legal option to work, you’ll have to be able to come up with a payment plan to fix the deficit.
Options when you are unable to make up missing payments
Apply for a mortgage modification. Every homeowner facing a challenge in making their current payment should apply for a mortgage loan modification. You may qualify for a reduced payment at a significantly lower interest rate. If you have applied and been denied, try again. If your lender again denies a modification you may want to consider other options to prevent foreclosure such as a short sale. Do I qualify for a loan modification?
Sell the house. If you have enough equity in your home to allow you to pay off your mortgage in full, after deducting any real estate agent commissions, then a quick sale is usually your best option. You’ll preserve what’s left of your credit score and your equity, leaving you in a much better position should you want to buy another home in the future.
Negotiate a short sale. If you owe substantially more on your home than it’s worth, you may be able to get the lender to accept less than it is owed by negotiating a “short sale.” A short sale is where the owner, with the bank’s approval, sells the property to a third party at the fair market value and the bank accepts the proceeds as full payment of the borrower’s loan. Their are advantages for both the lender and the borrower to short sale rather than foreclose. Short selling a home has much less emotional impact and social stigma than a foreclosure. The most important step is finding a qualified and experienced real estate agent who specializes in short sales. Click here for a list of certified short sale agents in your area.
A short sale can take up to 12 months or more to complete. If you know you are unable to continue to make mortgage payments then find a short sale agent and get started with the short sale process. The sooner you start the less likely your lender is to foreclose. A very good short sale realtor will be able to guide you through the process and negotiate with your lender on your behalf. An experienced short sale agent/realtor will make sure you walk away free & clear with the full deficiency balance waived.