Default Notice - AKA Notice of Default (Real Estate)
A default notice is exactly what it sounds like, a notice to the borrower that their loan is in default (delinquent).
Lenders are required to issue this notice as a warning before taking any legal action to recoup the unpaid debt. The wait period after a notice of default (NOD), which varies by state, gives the borrower time to bring their mortgage current. In California, the lender must wait 90 days after issuing a NOD before scheduling a trustee sale date (auction date) for the home.
3 months may seem too short to bring your mortgage current, especially when money is tight. The worst thing a homeowner can do (and I see it way too often) is put their head in the sand. This problem doesn't go away on its own. Lenders aren't going to forget that you owe them money. Often times, I get calls from homeowners after they've received a 'Notice of Trustee Sale', which is issued after the 90 day wait period.
This Notice of Trustee Sale gives the time and date for when the home is to be auctioned off. This auction date can take place in as little as 20 days from the notice. Although it is still possible to work something out, 20 days is a short amount of time to get everything squared away. This is why it is so important to address the situation as early on as possible.
So what should you do when you receive a default notice? Try to work something out with your lender. This doesn't always work, but commonly lenders would rather work something out to start receiving money again rather than going to auction where they may take a huge hit. If this doesn't work, it may be time to downsize (sell).
Know that if you choose this route, listing a property takes time. Not only do you face the possibility of not receiving offers immediately, but escrow generally takes at least 30 days. Once again, this is why it is so important to tackle the situation sooner than later.