What is a formal notice to a borrower indicating a default has occurred?

A formal notice to a borrower indicating that a default has occurred is known as a notice of default. This document serves as an official communication from the lender to the borrower, alerting them that they have failed to meet the obligations of their loan agreement, typically regarding missed payments.

The importance of a notice of default lies in its role as an initial step in the process of resolving the borrower's delinquency. It provides the borrower with an opportunity to rectify the situation before any more severe actions, such as foreclosure, are taken. The feature of the notice emphasizes that the borrower is being made aware of the specific issues at hand and the necessity for prompt action to avoid further consequences.

In the context of the other options, a notice of foreclosure would signify that the lender is moving forward with legal proceedings to reclaim the property due to the default, while a loan termination notice communicates the end of the loan agreement, though it might not specifically highlight a default situation. A notice of paycheck does not pertain to borrowing or default and would be irrelevant in this scenario. Thus, the notice of default is the most appropriate and relevant document related to indicating that a borrower is in default.