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Explain Notice of Default and Remedies

A Notice of Default from your mortgage servicer means you face the prospect of losing your property. Most people are overwhelmed by the idea of foreclosure. Many homeowners don’t reply to the Notice of Default and accept the foreclosure process as their fate.

Know that you have legal rights in a foreclosure proceeding. Your understanding can play an essential role in keeping your property or, at minimum, mitigate some of the damage done to your financial health. Lenders must abide by state law and, as long as your state stipulates that you must receive a written Notice of Default, you have some time to fight or remedy the situation.

Lender Obligations: Notice of Default, Written Claims, and Military Relief

In most states, the lender’s most important obligation is to provide the Notice of Default to the property owner. Lenders in these states must provide the homeowner with “sufficient notice” to facilitate understanding of the default and provide notice of his or rights to cure the default before the lender initiates foreclosure proceedings.

The lender must also provide proof of the money owed on the mortgage. It must file a statement to itemize what the current owner owes on the mortgage loan, including principal, interest charges, late fees, attorney costs, and other items the lender may charge under the mortgage contract’s terms or according to state laws. In some states, lenders aren’t required to send a written claim to the property holder.

If you’re active military, you may have an automatic remedy against the foreclosing party. The lender must certify in writing that the property owner isn’t a member of the military services before starting the foreclosure action. The Service members (Soldiers & Sailors) Civil Relief Act (SCRA) protects deployed active duty members. Consult an experienced attorney about foreclosure proceedings to protect your rights.

Let’s review potential remedies you might have when faced with the written Notice of Default.

Notice of Default and Foreclosure

The written Notice of Default is the mortgage servicer’s declaration that you’re behind on mortgage loan payments. It’s a statement that you’re in breach of the loan contract. With the notice, you receive a specific time period to remedy the condition to avoid foreclosure.

Foreclosure allows the lender to repossess or sell your property for purposes of repayment of the debt you owe on the mortgage loan. The mortgage holder has the right to foreclose on your property at any time after you miss mortgage payments unless the mortgage contract or state laws in which the property is located say otherwise. Each state laws vary. However, foreclosure in all states usually involves the following:

  • The current holder of the mortgage loan provides the homeowner in default with the written Notice of Default.
  • The property owner has a certain period of time in which he or she may cure the default by paying the full amount due, including interest, fees, penalties, attorney’s costs, and other charges allowed by law.
  • If the property is located in a state which uses the judicial foreclosure process, the foreclosing party must file a lawsuit against the property owner If the property is located in a state which allows nonjudicial foreclosure, it won’t need to file a lawsuit in court. Some states, such as California allow lenders to use both types of foreclosure.
  • If the homeowner doesn’t cure the default in the time period allowed, the mortgagee (loan holder) usually gives the homeowner notice of the foreclosure sale.
  • The high bidder may purchase the foreclosed property at public auction or, in some cases, the lender may purchase it with the intention of liquidating the property in a private sale.
  • The foreclosed owner must leave the property is he or she is still living in it after the sale. The new owner may file an unlawful detainer suit to evict him or her if necessary.

It’s important to communicate with the lender after receiving the Notice of Default. The timeline of the foreclosure process can vary widely. State law and the mortgagee’s motivation can shorten or lengthen the time needed to foreclose. Typically, the foreclosure process begins 90 to 180 days after the homeowner misses the first mortgage payment. In the next section, let’s review some of the remedies to prevent foreclosure.

If the Lender is Wrong

Lenders make mistakes. You lender may incorrectly claim you’re in arrears by a certain amount of money. If you believe the lender is wrong, write a letter to explain why you’re not in default. Attach copies of cancelled checks or other documents to prove your position.

If your lender doesn’t agree, there’s a legal remedy. Take the lender to court to provide you didn’t default on the mortgage loan. If you reach the decision to sue the lender, the documentation you provided to it beforehand is crucial. Consult legal counsel at this stage to manage court appearances, communication, and documentation.

Legal Remedies to Stop or Prevent Foreclosure

Two legal ways exist to defend against or challenge the foreclosing party’s decision to foreclose:

  • A technical defense challenges the foreclosure proceeding. For instance, if the property owner isn’t provided with sufficient notice of default and foreclosure proceedings, the property owner can contest in court. Unfortunately, the technical defense can be defeated when the lender corrects the procedural defect. If the homeowner wasn’t given sufficient notice, the lender can defeat the technical defense in the issue of a new notice of default. The proceedings may proceed at that point.
  • A substantive defense is a stronger defense. The substantive defense challenges the mortgage terms. Some examples of substantive defenses in the foreclosure process include:
  1. You aren’t in default. Interest and principal were paid on time according to the mortgage contract terms.
  2. You show that the mortgagee used fraudulent means to obtain the mortgage.
  3. You decide to file for bankruptcy protection. If the bankruptcy is filed prior to the foreclosure sale, it may temporary stop (“stay”) foreclosure.
  4. You pay off the loan plus the lender’s costs and expenses related to the foreclosure within the time period allowed.

You may have a legal reason to prevent or stop foreclosure. In that case, you must file an objection with the state court. In most states, you may file an objection before or after the sale takes place or prior to the ratification of the sale if you believe the sale wasn’t properly conducted.

Practical Remedies to Stop a Foreclosure

  • Ask the lender to provide precise details concerning what you did or didn’t do. Request the lender to explain how you can remedy the default. In other words, ask the lender to work with you.
  • Pay any outstanding loan payments, interest, late charges, or fees the mortgagee says you owe. This may be very difficult if you’re already having financial problems. However, it’s the best way to stop foreclosure.
  • Propose a compromise to stop foreclosure. If the lender agrees, you stay in the home. You’ll avoid a serious hit to your credit scores.
  • Ask the lender to lower payments and provide more time to pay past-due amounts over a longer time period.
  • Ask the lender to raise your mortgage rate in exchange for lower payments.
  • Refinance the mortgage loan if possible to lower your monthly payments.
  • Sell the property to keep a larger percentage of equity Identify a realtor or agent who’s experienced in foreclosure investing.
  • If all else fails, volunteer to give the property back to the lender (Deed in Lieu of Foreclosure).
  • Request a postponement of foreclosure proceedings on a one-time basis. Make a strong written argument about why the postponement of the foreclosure will allow you to get the money necessary to cure the default.

If you’re facing foreclosure, check the mortgagee’s status with the state attorney general’s office. Never make verbal agreements. Don’t hide your head in the sand. Foreclosure is a problem that won’t go away unless you take proactive remedies to cure the mortgage default.

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