Quick answer
Refinancing a loan in default means replacing a lender that has issued a default notice with a short-term private first mortgage that pays it out in full at settlement, before it can sell the property. Arrears and defaults are considered case by case, with equity and a clear exit mattering most. The new loan buys time to sell on your terms, fix the business or refinance to a bank.
Key points
- A default notice starts a clock; act in the first days, not the last
- In Victoria and WA the land titles notice generally allows one month unless the mortgage sets another period
- A private first mortgage pays out the defaulting loan, including arrears and costs
- Equity and a clear exit matter more than the default itself
- Refinancing early protects equity that a forced sale can erode
- Amounts
- $20k – $5m
- Term
- 1 to 24 months
- Credit history
- Considered case by case
- Speed
- 24–48 hours possible once documents are in
A default notice changes the tone of a loan overnight. Polite reminders become formal letters, the lender starts quoting sections of legislation, and the property you built your business around is suddenly at risk of being sold by someone else, on their timetable and at their price.
There is still a window to act. If the property has equity, a private first mortgage can pay out the defaulting lender in full and give you time to recover in an orderly way.
What happens after a lender issues a default notice?
The process differs between states and loan contracts, but the shape is similar. Under Victoria’s Transfer of Land Act, a lender can serve a notice requiring payment once a default has continued for one month, or another period fixed in the mortgage. If the default is still not fixed one month after the notice is served, or within another period the mortgage sets, the power of sale can arise. Landgate’s guidance in WA describes a notice giving the borrower one month to remedy the default under a standard mortgage, again unless the mortgage sets a different period.
After that, the lender can move toward possession and sale. Every step adds cost: default interest, legal fees, agents’ fees and the risk of a sale price that suits the lender’s need for certainty rather than your need for value.
The practical lesson: the time to refinance is the day the notice arrives, not the week before the deadline. Have your solicitor read the notice immediately to confirm what it requires and by when.
Can a private lender refinance a loan that’s in default?
Often, yes. Arrears, defaults and past credit problems are considered case by case. The weight sits on three questions:
- Is there enough equity to pay out the defaulting loan, including arrears and costs, with room to spare?
- Is there a clear exit, such as a planned sale, a bank refinance after a period of recovery, or a known payment?
- Does the refinance fix the problem, or just postpone it?
How a damaged credit file is read is covered on our page about bad credit and ATO debt.
The new loan is a private first mortgage. At settlement, the defaulting lender is paid out, its mortgage is discharged and the new mortgage is registered. The mechanics match a standard refinance, covered on our refinance a bank first mortgage page; the difference is urgency.
How does the timeline compare with doing nothing?
| Stage | If you refinance now | If you wait |
|---|---|---|
| Default notice received | Time to plan, documents gathered calmly | Notice period starts running down |
| Notice period running | Private loan settles, lender paid out | Arrears, default interest and fees grow |
| Notice period expires | Already refinanced | Lender may move to possession and sale |
| Lender in possession | Not applicable | Options narrow; costs climb further |
| Mortgagee sale | Not applicable | Sale on the lender’s terms; you receive what’s left |
Refinancing early protects equity that would otherwise be absorbed by enforcement costs and a rushed sale.
What does a default refinance cost compared with the alternative?
A private first mortgage is priced on each deal’s security, LVR, term and exit, and we aim for the sharpest price your situation allows. A small assessment fee applies, varies per loan and is shown on the Letter of Offer.
The useful comparison is not against a bank loan you no longer have. It is against what continued default costs: default interest, enforcement fees, agents’ commissions on a forced sale, and the gap between a sale you control and one you don’t. Interest can be prepaid or capitalised, so there may be no monthly repayments during the term, which stops the arrears cycle while you recover.
What does a default refinance look like?
Illustrative example: a Brisbane couple run a hospitality business through a company. Their investment property, worth around $1.1m, secures a $560k business loan from a non-bank lender. After a difficult trading year they fall three months behind and receive a default notice. The payout figure, including arrears, default interest and the lender’s legal costs, is $610k. Within the first week they engage a solicitor and apply for a $650k private first mortgage for 12 months with interest capitalised. It settles before the notice period expires, the defaulting lender is paid out, and the mortgage is discharged. Eight months later, with trading recovered, they sell a separate asset and refinance the remaining balance with a bank.
They kept control of the property, the sale, and the timing.
If you’ve received a default notice, contact a specialist straight away with the notice and payout figure.
Should I tell my current lender I’m refinancing?
Yes, through your solicitor, and early. A defaulting lender wants its money back, and a credible refinance is usually the outcome it would prefer to a sale.
- Ask for a written payout figure that covers a date a little beyond your expected settlement, so it doesn’t expire on you.
- Share evidence of progress, such as the private lender’s Letter of Offer, once you have it. Some lenders will hold off further enforcement steps while a refinance settles, though none is obliged to.
- Keep communication in writing. Clear records protect you if timelines get tight.
- Don’t let paperwork stall. Book the discharge and settlement as soon as the new loan is approved.
Silence is the most expensive option. A lender that hears nothing has every reason to keep enforcing.
What documents are needed to refinance a defaulted loan?
Move fast by sending everything at once:
- the default notice and any later letters;
- a written payout figure from the current lender;
- ID for every borrower and guarantor;
- company or trust details;
- property details;
- the exit plan, with any evidence (listing agreement, bank discussion, contract).
Our guide to the exit strategy for a short-term mortgage shows how to make the repayment plan convincing. If there is also a second mortgage or caveat on the title, read how second mortgages rank to understand who is paid first.
Key terms
- Default notice: a formal notice requiring the borrower to fix a default within a set period.
- Power of sale: the mortgagee’s right to sell the property if the default isn’t remedied.
- Mortgagee in possession: a lender that has taken control of the property.
- Payout figure: the full amount needed to discharge the loan on a given date.
Default notice in hand? See if you qualify
Your first enquiry won’t involve a credit check. A real specialist reviews it, including the notice and the payout figure, and your details aren’t shopped around to other lenders. Our lending partner fundU is a direct lender, so the decision is made by the people who fund it.
Tell us the property, the payout figure, the deadline in the notice and how you intend to repay. Precise answers about the property and what is owing let us give you the right answer first time. Start your enquiry now.
Frequently asked questions
Can I refinance if my lender has already sent a default notice?
Often, yes. Defaults and arrears are considered case by case, and the deciding factors are the equity in the property and a believable exit. The sooner you act after the notice, the more options remain open.
How long do I have after a default notice?
It depends on the state and the mortgage. Under Victoria's Transfer of Land Act, a mortgagee can generally exercise its power of sale if the default isn't fixed within one month of the notice, or another period set in the mortgage. Landgate describes a similar one-month period in WA. Check your notice with your solicitor straight away.
Will the payout figure include extra costs?
Usually. Expect arrears, default interest, enforcement costs and legal fees on top of the principal. Ask the current lender for a written payout figure so the new loan is sized correctly.
What if the lender is already in possession or marketing the property?
Refinancing may still be possible until the property is sold, but options narrow quickly and costs grow. Contact your solicitor and a specialist immediately.
Do I need perfect paperwork to refinance a defaulted loan?
No. You need ID, entity details, the default notice, the payout figure, property details and a realistic exit. Lender focus is on the property and the plan, not on a spotless file.