securedpersonalloans.com.auA record of the thing behind the loan

Guide 2 of 5 · The notice

The default notice and the wait before enforcement

Before a lender can begin enforcement proceedings to recover money, take possession of property or sell property, it must give the borrower a default notice under section 88 of the National Credit Code. Section 88 says the notice must allow the borrower at least 30 days from its date to remedy the default.

General information, not financial or legal advice. To check the steps for yourself, read the National Debt Helpline’s page on personal loans.

Where the thing is: still with you, while the notice runs

2.1The clock, drawn

  1. FirstA repayment is missed
  2. ThenThe lender gives a default notice
  3. At least 30 daysThe borrower can pay what is behind, plus the usual repayment
  4. LastThe notice period ends

A drawing, not to scale. The 30 days is the National Debt Helpline’s figure for a secured personal loan. The gap between the missed repayment and the notice can be short or long, as the next section explains.

2.2Before the notice

A missed repayment brings costs before it brings enforcement. Moneysmart says missing a payment on a personal loan can mean a fee, falling behind on the loan, and default interest.

On a home loan, Moneysmart says the lender can send a default notice the day a repayment becomes overdue, though it may wait until the repayment is 90 days or more overdue. The National Debt Helpline describes the notice as a letter the credit laws require: if your loan is covered by those laws, as a home loan or investment property loan is, you must be sent one.

2.3What the notice gives

For a secured personal loan, the National Debt Helpline says the notice must allow at least 30 days to pay the arrears together with the normal repayment. Moneysmart describes the home loan notice the same way, and adds that you can still apply for a hardship variation at that stage.

ASIC says the notice must substantially meet the pro forma requirements in Form 12A and Form 18A of the National Credit Regulations. This guide follows what the notice does to the thing, rather than its wording.

Section 88 also says when a lender need not give a default notice, or wait until its period has passed, before beginning enforcement proceedings: where it reasonably believes the borrower or mortgagor induced it by fraud to enter into the contract or mortgage, where it has tried reasonably but without success to find them, where a court authorises it, or where it reasonably believes mortgaged goods have been or will be removed or disposed of without its permission, or that urgent action is needed to protect the mortgaged property.

Moneysmart’s advice to anyone who receives one, on its mortgage page, is plain: “do not ignore it”, and talk to the lender or get free legal advice immediately.

2.4What can pause the clock

The sources name several things that hold enforcement back while they are dealt with. Each comes with its own conditions.

  • A hardship noticeSection 89A of the National Credit Code applies where a lender has to give a default notice under section 88 before it begins enforcement proceedings, and the borrower gives it a hardship notice under section 72, whether before or after the default notice. It covers a borrower who gave the lender no other hardship notice in the 4 months before, or who did, where the lender reasonably believes the new notice rests on a materially different basis. The lender then “must not begin enforcement proceedings against the debtor unless” it has given its notice under section 72(4)(b) saying the two of them have not agreed to change the contract, and 14 days from that notice have passed. Those 14 days may end before, at the same time as, or after the period the default notice gives to put things right. There is one exception for goods: the lender may still take possession of mortgaged goods if it reasonably believes the borrower or mortgagor has removed or disposed of them, or means to, without its permission, or that urgent action is needed to protect them. How to give one is in hardship and changing the terms.
  • An arrangement that is keptFor a secured loan, the National Debt Helpline says that if a financial hardship arrangement is agreed and kept to, the asset can’t be taken.
  • A complaint about the noticeWhere a complaint involves a default notice, ASIC’s guidance says the lender must give its internal dispute resolution response within 21 calendar days. While a complaint is being handled at that stage, and for a reasonable time afterwards, ASIC says lenders and debt collectors must hold off starting or continuing legal proceedings or other enforcement against the person who complained, unless a limitation period is about to run out. Complaints about hardship notices or requests to postpone enforcement must be treated as urgent.
  • A dispute with a free dispute resolution schemeWhile such a dispute is under way and being investigated, the National Debt Helpline says the asset usually can’t be taken. For a home, it says the lender can’t continue with enforcement, such as repossessing the home, while AFCA considers your dispute. It also notes you can lodge a dispute even while being sued, as long as judgment has not been given.
  • A disputed amountIf a borrower disputes a particular amount by written notice, the lender must explain in writing how it arises, and must not begin enforcement on a default arising from that amount until 30 days after it gives that explanation or advises of an agreed amount. This is in disputing the amount, and the courts.

2.5When the notice period ends

If you are still behind after the notice expires, the National Debt Helpline says the lender may seize the asset. One limit it names matters for goods kept at home: the lender can’t seize assets from residential property unless a court orders it or you consent in writing.

The same page says the lender may instead take you to court for the debt, without seizing anything. For an unsecured loan, where there is no asset, it says the lender may start court proceedings once the notice expires.

For a home, Moneysmart describes a court path. After the 30-day default period, the lender can serve a Statement of Claim or a summons, which starts legal action to claim the whole amount of the loan. There is then a fixed period for filing a defence, or for taking the matter to a dispute resolution scheme, and its length differs between states and territories. If you do nothing, the lender can take action to repossess the home, and Moneysmart says to get legal advice if you receive a Statement of Claim.

The National Debt Helpline adds a deadline that matters here: a dispute must be lodged with external dispute resolution before the lender gets court judgment, and the court documents give an indication of the time allowed.

What the law says once the thing has been taken is the next stage of this record: after the asset is taken.

2.6Free help the sources name

Moneysmart describes financial counsellors as a free and confidential service for help applying for financial hardship, and names the National Debt Helpline as the way to talk to one. Financial counsellors do not give legal advice, Moneysmart notes; if you are facing legal action, it says to get free legal advice straight away.