Receiving a Notice of Default can feel scary and overwhelming.
Lenders purposely send this Notice as aggressively as possible. It is not uncommon for you to have received this document multiple times, via regular mail, certified mail, and taped to the front door of your home.
If you have received this Notice, it is definitely time to start taking active steps to determine what your options are to avoid foreclosure and resolve the default.
What is a Notice of Default?
The Notice of Default is usually considered the first step in formal foreclosure proceedings.
The Notice of Default is typically a document stating that you have breached your mortgage contract and missed payments on your mortgage.
If you have received a Notice of Default, you are considered past the “pre foreclosure phase” and are considered “in foreclosure.”
The bank has started the process of taking active steps to foreclose on the property.
The Notice of Default is usually multiple pages long and is typically signed and notarized by a lender representative (or a representative from the Trustee’s office).
It tells you who the borrowers are on the mortgage
The Notice of Default lays out who the borrowers are on the loan. All parties listed within the Notice of Default are facing foreclosure.
It tells you who the beneficiary is on your loan
You likely know who your lender (or servicer) is on your loan. Your lender is the party who you talk to on a regular basis, the party who issues your mortgage statements, and the party who is trying to collect the missed mortgage payments.
You likely have not talked to your investor (as they are well-insulated from having to communicate with borrowers). Your investor or beneficiary is the party who owns your loan.
A Notice of Default also tells you who your lender (or servicer) is.
It tells you how much you owe
The Notice of Default will tell you how many mortgage payments you’ve missed. It will usually have a date range from the date you first defaulted on your mortgage through the date when the Notice of Default was prepared.
It likely will also have a breakdown of fees added and a total of all missed mortgage payments and fees.
This total is known as your “reinstatement amount” or the amount you need to pay if you decide to reinstate the loan in full, at one time.
It gives you instructions on how to “cure the default” or pay the “reinstatement amount”
Most Notice of Defaults give instructions on how to fully reinstate everything you owe.
The Notice tells you where to send funds and how much is owed to bring the account current and resolve the default.
In Washington State the Notice of Default states that you have thirty days to cure the default before a Notice of Trustee’s Sale can be recorded. Once the Notice of Trustee’s sale is recorded a foreclosure sale can occur after an additional 120 days.
The Notice of Default informs you about any government help programs that may be available to you
Some states require that the Notice of Default tell you about various government agencies that can help you.
Most commonly, you’ll see information about HUD housing counselors or a phone number for HUD listed within the notice.
The Notice of Default for non-judicial foreclosures will tell you who your Trustee is
A non-judicial foreclosure is a foreclosure that happens outside the court system. Some states foreclose non-judicially – meaning, the bank does not have to take you to court to foreclose on the property.
If you are in a state that allows non-judicial foreclosures (like Washington State), the Notice of Default will be issued by the Trustee.
The Trustee is the in-state company or law firm that has been retained by your lender to actually execute the foreclosure. The Trustee’s contact information will be listed on the Notice of Default.
Most commonly, if you decide to reinstate the mortgage, the Notice of Default tells you to send funds to the Trustee.
The Notice of Default (or “default letter”) for a judicial foreclosure will precede a hearing
A judicial foreclosure occurs within the court system.If you’re in a state that executes judicial foreclosures, you will usually receive a “default letter” or “default notice” that will then be followed by a hearing date where you will have an opportunity to cure the default and respond to the default letter.
Most Notice of Defaults do not set a public auction date
In Washington State, the Notice of Default does not set an auction date against the home.
The public auction is usually set by the notice that follows the Notice of Default (the Notice of Trustee Sale).
Receiving a Notice of Default does not mean you are out of options to avoid foreclosure
While a Notice of Default often looks scary, you likely still have an opportunity to try and avoid foreclosure.
A Notice of Default may open up opportunities for state-sponsored programs to help you avoid foreclosure
In Washington State, the Foreclosure Fairness Act allows eligible homeowners who have received a Notice of Default to file for a process called Foreclosure Mediation.
Foreclosure Mediation stops the foreclosure on the property, prevents the lender from recording the Notice of Trustee Sale (the final notice) and gives you an opportunity for an in-person meeting with your lender to discuss options to avoid foreclosure.
You may be able to stop the foreclosure process by going through your mortgage lender’s “loss mitigation process”
- You can use the loan modification process to help you achieve a mortgage modification so you can resume mortgage payments and keep your home. An approved and accepted loan modification will stop your foreclosure. If you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA loan, there may be government programs to help you achieve a mortgage modification (to keep the home).
- You can request forbearance on your mortgage loan. If approved for forbearance your mortgage servicer will temporarily stop requiring monthly mortgage payments for an agreed upon time.
- You can complete a reinstatement of the past due amounts in order to bring your loan current and keep the home. A reinstatement is a one-time payment in full of all your missed mortgage payments and any related fees. After you reinstate, you then resume your normal monthly mortgage payments.
- You can work out a new repayment plan with your bank or mortgage servicer to catch up on mortgage payments and keep the home. A repayment plan allows you to resume your regular mortgage payments with an agreed-upon extra amount on top of your regular payment that goes toward the arrears. Once your repayment plan is done, you continue with regular mortgage payments.
- If you want to short sell your home or deed it back to the bank (because you owe more than the home is worth), there are ways to apply and negotiate approval for a Deed in Lieu or a Short Sale Agreement with your lender. These agreements will help you stop foreclosure and get out of your home before the auction date.
You may be able to stop the foreclosure process by completing an equity sale of your property before the foreclosure sale date
If you want to sell your home and recover your equity, you may want to consider selling the property on the real estate market before your foreclosure auction date.
(If you’re considering this, you may want to partner with a distressed sale manager to handle the foreclosure aspect of the sale as these sales often take place on a tight timeline).
You may be able to stop the foreclosure process by using foreclosure defense laws and protections:
- For homeowners in Washington State, you may be eligible for Foreclosure Mediation under the Foreclosure Fairness Act. This is a government-help program designed to stop foreclosure so you can communicate directly with your bank. Either a housing counselor or a foreclosure attorney will be required to help you apply for mediation.
- You can sue your bank using the foreclosure litigation process. A lawsuit will slow down or stop the foreclosure. This may be a good option if you’re facing a non-judicial foreclosure. If you are facing a judicial foreclosure process, you would likely present your defenses to foreclosure within the judicial process already, so most people who choose to sue their bank are facing a non-judicial foreclosure. You want to make sure that you have a valid legal reason for suing your bank before you do so – suing your bank just to get more time in the home isn’t always the best option.
- There may also be ways to use the civil litigation to sue your bank under federal laws like RESPA, TILA, the FDCPA, and the CFPB.
You may be able to stop the foreclosure process by using bankruptcy to stop foreclosure:
A Chapter 7 or a Chapter 13 bankruptcy stops foreclosure actions. Once you file bankruptcy, an ”automatic stay” goes into place which stops the foreclosure. Your mortgage lender can ask the bankruptcy court to lift the stay (by filing a motion) but even if this happens, you will likely still be able to delay foreclosure for 1-2 months using the bankruptcy process.
A Chapter 13 bankruptcy may also help you keep your home long-term by establishing a payment plan that allows you to pay back the missed mortgage payments over a certain amount of time.
A Chapter 7 bankruptcy doesn’t allow you an opportunity to catch up on mortgage payments or keep the home long-term, so this type of bankruptcy is mostly beneficial in delaying the foreclosure sale and getting rid of other unsecured debt, not in figuring out a long-term solution.
If you’re considering filing bankruptcy, the first step is always to have a consultation with a bankruptcy attorney about your particular situation so you get the best advice.
Receiving Notice of Default can feel overwhelming. The best thing to do if you’ve received this notice is to consult with a foreclosure defense attorney as soon as possible. If you’re a Washington State homeowner, feel free to give me a call at (425) 654-1674.