A notice of default is a letter sent to a homeowner telling them that they have not made their mortgage payments and that they need to pay for the missed payments, plus fees, in order to avoid foreclosure.
The letter will call making up for the missed payments “curing the default”.
A notice of default is required by law and will usually arrive after three months of missed mortgage payments. It shouldn't be a surprise since you know when you haven't been paying your mortgage and the bank will have been in contact before sending the default letter.
A default letter could also be called:
- Notice of Intent to Accelerate
- Acceleration Notice
- Demand Letter
- Notice of Default and Acceleration
What Is Acceleration?
Acceleration is when the lender demands that you pay off the entire balance of the loan all at once if you miss payments. There's language in your mortgage contract that gives the lender the right to accelerate.
Following is an excerpt from a notice of default a Regions Bank client of ours received:
What A Notice Of Default Is Not
A notice of default/acceleration is serious, but it's not the same as being served a summons and complaint that officially starts the foreclosure lawsuit in judicial foreclosure states (such as Florida, New Jersey, New York, Pennsylvania, and Illinois). And it does not mean that your home is scheduled to be sold in a foreclosure auction yet. However, that will happen if you don't do something to avoid it.
What Do You Do When You Get A Notice Of Default?
Getting a notice of default or acceleration can make you panic and feel hopeless. You didn't have enough money to pay your mortgage, and now your lender wants you to pay for all of those missed payments at once, plus fees, or else they'll foreclose. How are you supposed to do that?! Most people can't.
So, what solutions can allow you to reinstate your mortgage and avoid foreclosure? Unless you have a bunch of cash you want to spend to make up for your missed mortgage payments plus fees in one fell swoop, there are only two options. One is to work out a repayment plan with your lender, which would mean paying back your missed payments and fees over time. However, paying extra money toward your mortgage each month may not be an option for you. The other option is to get a loan modification.
Loan Modification To The Rescue
A loan modification is a permanent change to one or more of the terms of a loan mortgage. If you are approved for a loan modification after defaulting on your mortgage, your loan will be reinstated and returned to normal servicing and foreclosure will be averted. Sometimes a loan is modified to have a lower monthly payment and reduced principal balance. And it doesn't cost anything to get a loan modification.
Now for the bad news: loan modifications are not easy to get. You have to submit a ton of paperwork to be considered for one and banks often deny applications. If you don't have a lot of experience dealing with loan modifications, you should consider hiring someone who does, such as a qualified attorney with experience getting loan modifications for their clients, to give you the best odds of being approved.
Even if you don't want a loan modification, an attorney can help you stay in your home for as long as possible and leave under the best circumstances.
When you get a notice of default, don't panic. Get a lawyer and work toward saving your home.