What Is a Notice of Default?
Too many people are now familiar with the Notice of Default and many more will likely find out about it soon. The process of foreclosure includes a Notice of Default on monthly mortgage payments for the home where you live. This is the first step in the process of foreclosure resulting from non-payment of two (or more) monthly mortgage payments.
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Stalling Foreclosure
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The Notice of Default is an official document filed at the county seat where the property is located. It advises the homeowner that the mortgage must be current within 90 days of the date of the document or the lender will proceed to foreclosure.
It is not the end of the world--if the homeowner initiates an informed action to prevent foreclosure. Time is of the essence. Research and action must take place immediately. You have 90 days from date of the Notice of Default to fulfill the lender's requirements.
The homeowner has options that could improve the situation. Loan modification or a mutually agreeable short sale are two avenues to pursue. There are several programs existing under the loan modification program.
Two Programs to Consider
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Making Home Affordable: This mortgage modification program serves more than borrowers who are in financial distress. Homeowners, who are current with monthly payments but see challenges ahead, are included. Even those who lost significant equity in their homes due to the housing market crisis qualify to participate.
Modification programs include Hope Now, Interest Rate Reduction, Loan Term Extension, Reduction of Principal, FHA Partial Claim or the Fannie Mae HomeSaver Advance. Each program is different and targets a defined homeowner group. Keep yourself informed as new modification programs may pop up anytime.
Short Sale Option: A lender determines it is in its best interest to sell property for less than the outstanding principal balance of the mortgage. If the cost of foreclosure is higher than the amount of unpaid mortgage principal, another outlay of money for a foreclosure auction does not make sense. Some borrowers may not fit any available program, making short sale or foreclosure inevitable.
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Expedient Action
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Information contained within the Notice of Default includes the costs to bring the loan current and/or pay the balance in full. It also will note attorney fees and copies of the notice mailed to others with a stake in the property.
It is important to determine the events leading to your current situation. A change in financial circumstances caused by job loss, illness or disability is frequently the culprit. Accident or injury is close behind. If the situation will last in perpetuity, the loan modification process is the best choice for you.
However, if a positive future event will improve your financial situation, a refinance could be the way to go. As soon as you make your decision, you must communicate with your lender. The lender has monetary government incentives to do everything possible to help you stay in your home.
Action Timeline
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Usually, 90 days to one year will pass before the Notice of Default goes to your local courthouse. The lender determines the timeline and certain lenders will mail the letter to you after 60 days or two payments have passed. The first missed payment generates a credit bureau report.
The lender reports each delinquent payment thereafter. Each missed payment also generates late fees and they will increase the amount that the lender intends to recoup. Say goodbye to your credit history and score. The speed of lender actions is dependent upon the speed of homeowner communications.
Communicate
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Give your lender the chance to help. They need to know the situation before they can do anything for you. Early contact with your lender could be the determining factor for filing the Notice of Default.
This Notice of Default is a big step. Once filed, you are responsible for legal fees and filing fees, which will leave you with fewer options. It is important to remember that some loans underwritten over the past few years were predatory in nature and the borrower was set up to fail from the start and a short sale should be discussed with your lender immediately.
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