Notice Of Default

Why A Notice of Default

Most times missed payments are not intentional. It may be due to a financial setback as a result of dropped or even loss of income, the unforeseen event of an illness, or just the challenges of life striking you. All this is inevitable.

Therefore, it is essential to inform your creditor of an arising situation that may deter you from making your payments on time and prevent getting a Notice of Default.

Consequently, you might be able to arrive at a consensus on how to handle the situation. If not, your creditor may proceed to take legal action to either force you to make payments or recover the property in a case of a mortgage.

What Is A Notice Of Default?

A default of notice is a formal document sent to a borrower by the creditor(s) after they have missed several payments. It is usually the first step that a creditor will take in a bid to recover their property after a breach in the contract between them and a debtor, acting as a formal warning to the debtor (before legal action)

If they miss payments upon a predetermined date. A Notice of default may also be referred to as a default notice.

Credit Providers That Can Issue A Notice Of Default

It is essential to keep in mind that any agreement bound and regulated by the Consumer Credit Act is subject to legal action upon default.

The creditor is mandated to issue a default notice before proceeding towards the commencement of further legal action.

Such agreements include;

Mortgages

Hire purchase agreements

Credit cards payments

Mobile phone contracts

Bank-related payments such as personal loans

Contents Of A Notice Of Default.

A notice of default should only be issued if you have missed three to six months’ worth of payment. It is sent to the debtor by the lender via email. In some states, the creditor is allowed to pin it on the borrower’s door.

This document is typically filed with the local courts or the county recorder’s office. The contents of the document tend to vary from state to state.

Regardless, the following is what you should expect to find in the document;

The lender and borrower’s contact details( at times the contact details of a trustee)

The credit agreement details and description of the default.

Actions towards resolution of the matter

Consequence(s) for failing to honor the notice of default

The legal clause under which the default notice is issued. For instance, “Served under section 87(1) of Consumer Credit Act 1974.

The Course Of Action After Issuance Of A Default Notice.

It is vital to note that the default notice does not always have to end up in a loss on your part. There are some measures you could take to salvage the situation.

The document precedes the foreclosure process depending on the type of agreement. In real estate, the notice may also serve as the last warning to indicate the risks involved in not settling their mortgage arrears.

On the other hand, some lenders use the document as the final notification to the borrower before initiating the foreclosure process.

The foreclosure process may take two approaches, the judicial approach or the non-judicial approach. The approach to be adopted primarily depends on the laws of the state- with exceptions.

Judicial Foreclosure

Here, the lender or loan owner takes to the court to sell your house to cure the debt. In this case, the bank has to file a lawsuit towards foreclosure. Most often than not, this process takes longer, consequently buying you more time to find an alternative home or to save money.

This platform also allows you to defend yourself without having to file a lawsuit against your debtor.

Non-Judicial Foreclosure

According to the non-judicial approach, the debtor may receive a Notice of Default and a Notice of Sale for the state law. The Notice of Sale contains details of the property, the address and public notification that the property is up for auction.

The non-judicial foreclosure procedure is usually indicated in the contract. The borrower requires appending a signature on a deed of the trustee that contains a power of sale clause.

The clause gives a trustee the right to sell the property in the event you stop making payments.

How Should I Respond To A Default Notice?

A notice of default will give you a 14-day-window to respond to your lender. It simply is a grace period to come up with a payment plan to prevent further damage.

Consider taking the following steps in response to the default notice;

Study the document carefully to confirm that the details are accurate.

Get in touch with the credit company to try and reach a consensus. (The lender may insist on clearing the total amount).

Ask the lender for an affordable repayment plan if you cannot afford to pay at once.

Seek debt advice from a legal practitioner for alternative debt solutions if the lender is unwilling to negotiate.

File for bankruptcy

Contact a Financial Ombudsman if you believe the document was issued unfairly.

An Insolvency Practitioner may regulate your debt repayment plan on your behalf.

Consequences Of Not Responding To The Notice Of Default.

Many times, the creditor’s action depends on how you choose to handle the default notice. The easy way out is making repayments within the stipulated time limit. Ignoring the notice altogether could lead to seizure of service in the case of a loan.

The company or bank stops giving you more credit and may even close your account. Further failure to comply could lead to reclamation via a sale of the property initially used as collateral.

In Summary, Steps That The Creditor Could take Against You Include;

Filing for a lawsuit which results in a County Court Judgement

Seeking the reinforcement of a debt collection agency that negatively impacts your credit score.

Repossession for goods includes in the agreement, such as a house in the case of a mortgage.

If you end up in court for such a case, consider getting the services of a foreclosure lawyer or a lender liability lawyer to help you through the process. They specialize in financial cases, especially when you wish to sue your lender.

Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.

References:   Notice of default, default notice, foreclosure, forbearance, mortgage, foreclosure lawyer, loan modification attorney, Financial Ombudsman