Default notice

If a borrower has breached her/his credit agreement, the lender must serve a default notice before s/he can take possession proceedings or any other enforcement action, such as terminating the agreement or demanding earlier payment of any sum. [1]

If the breach of agreement that causes the lender to send the default notice also triggers the need for the lender to send the borrower a notice of sums in arrears, the default notice will only be valid if the notice of arrears has been served within 14 days of the breach occurring. The page on notice of sums in arrears explain the situations in which a notice must be sent. [2]

The default notice must be in the prescribed form and must contain information about:

• the breach of agreement, for example, details of missed payments

• how the breach can be remedied, for example, arrears that require to be paid [3]

• the consequences of failing to comply with the default notice. [4]

The default notice should be accompanied by an information sheet prepared by the Office of Fair Trading, providing help and advice for the debtor. [5]

The default notice must allow the borrower 14 days from service of the notice to remedy the breach, [6] for example, by paying of the arrears. If the borrower remedies the breach within 14 days, it shall be treated as not having occurred. [7]

If the borrower is unable to clear her/his arrears within 14 days s/he could apply for a time order. For more information, please see the page on time orders.

In the event that the borrower does not remedy the breach or apply for a time order within 14 days, the lender can commence possession proceedings. Once a default notice has been served the possession proceedings for a case involving a second mortgage or secured loan are the same as possession proceedings for a mortgage used to by the property. For more information, please see the page on court action over mortgage arrears.