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A notice of default is a formal notification that a debtor has not made payments on an outstanding debt. It may serve as a reminder to pay and can lead to legal action, including foreclosure. Lenders may attempt alternative arrangements with the debtor before going to court. Legal counsel is recommended.
A notice of default is a formal notification that a debtor has not made payments on an outstanding debt according to the terms and conditions found in the contract between the debtor and the creditor. The exact wording of the document may vary, depending on the intentions of the lender. In many countries around the world, it is required for the lender to register this notice to the defaulting borrower with local authorities before foreclosure proceedings can be initiated.
In some cases, a formal notice serves as a reminder that the debtor is in default and to extend a grace period in which lawsuits can be avoided by paying the overdue amount. Often, some type of penalty or additional interest is applied to the overdue amount. These additional fees are also deemed due by the end of the grace period, otherwise the account will not be considered upgraded and will still be in default.
When preliminary notices go unanswered, it is not uncommon for the notice to remind the debtor of the courses of action open to the creditor. This may include legal action to recover the lender’s investment, sending the bill to a collection agency, or any other procedure permitted by the laws of the jurisdiction. Generally, when the creditor chooses to sue for damages, the courts move quickly, often returning a judgment in favor of the plaintiff. Shortly thereafter, the property is sold, any outstanding court costs are settled, and the remainder of the sale proceeds is sent to the creditor.
Since the costs associated with going to court after filing a notice of default can be quite high, many lenders will make every attempt to work out some sort of alternative arrangement with the debtor. These include the voluntary delivery of the property to the lender after receiving notice of default, which enables the lender to sell the property, pay off the outstanding mortgage and possibly cover at least part of the administrative costs associated with trying to recover the lost profits resulting from the defaulted mortgage. Even with situations where the debtor voluntarily waives all claims on the property, there is usually some type of legal process that must be followed. Since the civil law relating to foreclosures and foreclosures varies greatly from one country to another, it is important to seek legal counsel who is knowledgeable in the laws that apply to your specific situation.
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