When a lender seeks to foreclose on a mortgage property that has been secured using a deed of trust, the first step they must take is to file a Notice of Default. Mortgages that occur in states that do not require judicial foreclosure will typically require notices of default in place of a notice of lis pendens, which translates literally from Latin as "suit pending". These two documents and foreclosure processes are similar in many ways but have a few key differences.

In some states, real estate loans are two-party affairs, meaning that the lender keeps the deed to the property until the loan is paid in full, satisfying the terms of the promissory note and mortgage agreement. These states require an aggrieved lender to enter into a judicial foreclosure process and file lis pendens, which marks the beginning of the pre-foreclosure process.

But in many states, loans require a third party‘s participation and a deed of trust, which establishes the third party as a trustee and specifies the terms under which the property is to be foreclosed. In this case, the trustee will keep the deed to the property until the loan is paid in full. When a borrower falls far enough behind in payments to the lender that he defaults on the terms of the loan, the trustee files a notice of default, beginning the pre-foreclosure process. In a notice of default foreclosure, the notice becomes part of the public record and often the trustee must take out an ad in a local newspaper before selling the property.

The primary difference between these two processes is that a two-party mortgage foreclosure requires the approval of a judge and takes much longer to complete. When legally allowed, lenders usually prefer three-party deed of trust loans, which allow them to move the process along without spending time in court (unless the borrower files a grievance.)

If you have been issued a Notice of Default, this does not mean that you don‘t have most of the same rights as somebody who lives in a judicial foreclosure state. The lender still has to present all of the appropriate paperwork proving that the loan is valid (particularly the promissory note,) with the difference being that you must be the one to initiate the legal action to protect your rights.