Mortgage default notice: how long you have, and whether a short-term first mortgage can pay it out in time

The letter is on the desk. It says you’re in default on the mortgage over your property, and it has a date on it. Whether that property is a shopfront, a warehouse, an investment unit or the home you’ve offered as security, the next few days decide whether you stay in control of the outcome.

Here is how the notice clock works, what a private payout refinance actually involves day by day, and the order to do things in.

What does a mortgage default notice actually do?

It formally puts you on notice that you’ve breached the mortgage, usually missed repayments, and sets a deadline to fix it. Until that deadline passes, the lender generally can’t move to the next stage, which is court action for possession or a sale under the mortgage.

Two points are worth knowing straight away:

• Regulated consumer loans get a default notice under the credit law that must give “at least 30 days to fix the default”, according to Legal Aid NSW. If you pay the arrears and the usual repayment in that time, the loan returns to normal.
• Business-purpose loans usually sit outside that consumer notice. The warning period then comes from the mortgage terms and the state’s property law. In Victoria, for example, the lender serves a Notice to Pay under the Transfer of Land Act 1958 before it can act to sell the land, and Consumer Action notes it isn’t enforceable if it isn’t served correctly.

Don’t assume which category you’re in. Read the notice, find the date and work to that date. If it’s unclear, ask the lender or a solicitor to confirm it in writing.

What happens if the notice period runs out?

The usual path is: default notice, then court action or a sale under the mortgage, then possession and sale. Legal Aid NSW says the lender doesn’t strictly have to go to court, but in almost every case does, to get the sheriff to remove an occupant. It also says that once there is a judgment, it becomes “very hard” to negotiate time to sell.

That is the practical reason to move during the notice period and not after it. While the notice is running, you can still choose: refinance, sell, or negotiate. Once a judgment exists, the lender holds most of the choices.

Two protections are worth knowing about:

1. In Victoria you can stop the process by paying the full amount owing under the mortgage at any time before the land is sold (Consumer Action).
2. If a court has already ordered possession, you can apply for a stay, and an imminent sale or imminent refinance are recognised grounds. Proof is “essential”, so a signed letter of offer and a settlement date matter.

Can a short-term first mortgage pay the lender out in time?

Frequently, yes, and the structure is the reason. Your existing lender is the one in default. A second mortgage or caveat sits behind that lender and usually needs its consent, which a lender holding a defaulted loan rarely gives. A short-term first mortgage does the opposite: it replaces the lender. The new loan pays the old one out in full at settlement, the old mortgage is discharged and the default ends with it.

What makes that work isn’t the age of the notice. It’s three things:

• Equity. The new loan has to cover the full payout, which is the balance plus arrears and the lender’s costs, within the lending value of the property.
• A clear exit. A sale, a refinance back to a bank, or a contract that pays on a date. For a plan on timing, the exit date check is a quick way to test it.
• A file that can move. Title details, the notice, the payout figure and access for a valuer.

Speed is possible, not guaranteed. Our published position is that up to $5m can be possible within 24–48 hours when the file is ready and the property is secured. The mechanics of that are covered in how fast private lenders settle.

What does the refinance need, day by day?

This is an illustrative plan for a notice with about three weeks left. Compress it if you have less.

Day	What happens	Who holds it up
1	Read the notice, note the date, ask the lender for a written payout figure to a settlement date	You
1–2	Enquiry, scenario call, indicative structure	Us
2–4	Valuation instructed and inspected, title search	Valuer, registry
3–5	Letter of offer, your solicitor reviews, you sign	You and your solicitor
5–8	Settlement booked with the existing lender, discharge arranged	Existing lender
Settlement	Old mortgage paid out and discharged, new mortgage registered	All parties

The slowest steps are usually the ones outside the new lender’s control: the payout figure, the discharge and the valuer’s access. That is why the first action is a request for the payout figure, not a loan application.

What does the payout figure include, and why does it matter?

The new loan is sized on it. It is not the arrears figure and it is not the original loan balance. It typically includes:

• the outstanding principal;
• arrears and default charges;
• the lender’s legal costs for the notice;
• the cost of discharging the mortgage.

Ask for it to a specific settlement date, in writing, and ask the lender to confirm the daily amount so the figure can be updated if settlement moves.

An illustrative example

Say a business owner has a commercial unit valued by a lender’s valuer at $1.4m, with $720k owing to the existing lender including arrears and costs. A default notice has 21 days left to run.

• Payout figure at the settlement date: $720k.
• At a lending value of 65% of $1.4m, which is $910k, the new loan has about $190k of room on top of the payout.
• That room can cover the loan costs and leave some working capital, or be left unused.

That example is illustrative only. Real figures depend on the valuation, the property type and the state, and the LVR a lender will accept varies. The point of the sums is the order: payout first, then costs, then what’s left. If the valuer comes in lower than you expected, that room shrinks, as we explain in agent appraisal vs valuation.

If you’d like to see your own numbers before you commit to anything, the borrowing calculator shows how much room your equity might leave.

What if I have arrears, a default listing or a judgment?

It narrows the choice of lenders and it can affect the options on the table, but it doesn’t end the conversation. A private lender reads the property and the exit first. The credit file is one input. A court judgment is different from a notice: it can change what the lender can do, so tell us about it up front.

What does matter is honesty about the position. If a notice is five days from expiry, say so. A lender can plan around a known deadline and can’t plan around a surprise.

Who to call first, and in what order

1. Your solicitor — to check the notice, how it was served and the figure. This runs alongside the refinance, not before it.
2. The existing lender — ask for the payout figure and confirm the notice date. If you can, ask in writing for them to hold enforcement while you refinance.
3. A free financial counsellor — the National Debt Helpline on 1800 007 007, flagged by Moneysmart, is there if the arrears are part of wider money stress.
4. Us — for the refinance itself.

If you can’t see a way out because the bank has declined you, our guide on what to do when the bank says no covers the alternatives.

If the property is in Victoria, a caveat is a possible tool in other situations, but with a defaulted first mortgage it is the payout structure that usually works. Outside Victoria the same logic applies: replace the lender, don’t queue behind it.

Let’s see where you stand

A default notice feels final when you’re holding it, but it’s really a clock, and clocks can be planned around. If you’ve got equity in the property and a believable way out within months, a short-term first mortgage might clear the notice and give you room to breathe.

You can find out where you stand in about 60 seconds. Asking doesn’t involve a credit check, so your credit file isn’t touched just for enquiring. Your details aren’t sent to a pile of lenders either: a real person looks at your situation and calls you, so your phone won’t blow up.

One request: please fill the form in accurately, including the notice date and the amount owing. The more exact you are, the sooner we can match the right option the first time.

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