Understanding a Notice of Default During Foreclosure

What Is a Notice of Default?

A notice of default is a formal letter that a mortgage company sends when you’ve missed several mortgage payments. It’s also filed with your local property records office, which makes it a public record. You’ll usually get a copy by mail, and in some states, it may be posted at your home or published in a newspaper or on a county website.

The notice includes how much you owe, your lender’s contact info, and a deadline to catch up on missed payments. It also describes the property at risk.

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 the foreclosure process. Since it’s public, this notice can also hurt your credit score.

Notice of Default: Your Final Warning Before Foreclosure

Technically speaking, a notice of default is not a foreclosure. Instead, it serves as notice that you are behind in your payments and that your property may be sold as a result of foreclosure if you don’t act soon.

If you've received a notice of default, you should understand that 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 to resolve your outstanding balance in order to avoid foreclosure.

How Notice of Default Relates To Nonjudicial Foreclosure

The foreclosure process varies within each state. If you've received a notice of default, you likely: 

• Live in a state that follows nonjudicial foreclosure, and 

• Signed a mortgage loan with a power of sale clause. 

It can help to familiarize yourself with the nonjudicial foreclosure process if you live in a state that permits these processes. At this time, nonjudicial foreclosures are allowed in the following 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 the homeowner requests a judicial foreclosure), Oregon, Rhode Island, South Dakota (unless the homeowner requests a judicial foreclosure), Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming.

Under this process, the mortgage servicer will report your default to your county recorder's office. This office maintains county property records, though its title and duties vary by county. In addition to filing this notice publicly, the servicer must also meet certain requirements before proceeding with a foreclosure sale, but will not be required to file a formal lawsuit before moving forward. Foreclosure processes that require a formal lawsuit are known as judicial foreclosures. 

What Information Is Included in the Notice of Default ?

A Notice of Default will include the following:

• Name and address of the borrower

• Name and address of the lender

• The property address and description of the property 

• The total amount owed 

• A deadline for resolving the amount owed

• Next steps if the borrower does not resolve the delinquent amount 

How To Stop a Foreclosure Sale

Once this notice has been filed, the mortgage servicer must give the borrower time to pursue options. Borrowers must submit a loss mitigation application with their servicer. The servicer then has to tell you youroptions, which may include:

• Executing a deed in lieu of foreclosure

• Negotiating a loan modification

• Seeking forbearance

• Pursuing a short sale 

This period is called the loss mitigation period and is required under federal law. If a borrower doesn't submit an application within 120 days of the default, the mortgage lender can then 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 often a notice of sale. This means your home is scheduled to be sold at a public auction. Sometimes a buyer places the highest bid, but if not, the lender may take back the property and try to resell it.

Even if you’ve already received a notice of default, you may still have time to stop the foreclosure. The most direct option is to pay the full past-due amount. In many states, you must do this before the auction. But some states have a redemption period that gives you extra time—even after the sale—to pay what you owe and keep or regain ownership of your home.

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

• Refinancing: Taking out a new loan to pay off the old one.

• Loan modification: Changing the terms of your loan to make payments more affordable or to add missed payments to the end of the loan.

• Reinstatement: Paying the overdue balance and resuming your regular payments as if you were never behind.

Whether these options are available depends on how much time has passed, your loan agreement, and state laws. In recent years, federal rules have improved protections for homeowners in this process.

If you’re facing foreclosure, it may help to contact your mortgage servicer as soon as possible. Many homeowners also talk to a HUD-approved housing counselor or a foreclosure attorney to better understand their rights and next steps. Help is often available, and acting quickly can make a big difference.

If You Want To Avoid Foreclosure but You Can’t Keep Your Home

If you’ve decided that it is best to walk away from your mortgage burden, you could work with a real estate agent to sell your property. But it's important to understand that it may be more difficult to sell under the circumstances. Also, since time is of the essence, you might have to sell your home for less than what is owed — this is known as a short sale.

Deed In Lieu of Foreclosure

You might also have the option of executing a deed in lieu of foreclosure, which signs over your rights in the property to the mortgage company. This would allow you to avoid the public record and negative impact on your credit resulting from a foreclosure. 

File for Bankruptcy

Another option to avoid foreclosure is filing for bankruptcy. This creates an automatic stay, which temporarily stops the foreclosure process. While this doesn’t erase your mortgage debt, it can give you time to breathe and figure out your next move.

Keep in mind, the lender can ask the court to lift the stay and continue with the 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 through a repayment plan. This is often enough to stop the foreclosure, as long as you stick to the plan.

Let’s Summarize...

A notice of default is serious, but it’s not the end of the road. It usually comes by mail or may be posted on your property. This notice includes details about your home, how much you owe, and what could happen next. It’s the 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 signing it over to the lender (called a deed in lieu of foreclosure). These options may help you avoid the damage a foreclosure can do to your credit—and in some cases, you might even walk away with some equity.