Reinstatement and Payoff to Prevent Foreclosure & Your Legal Rights
Two ways in which you can prevent a foreclosure are reinstatement and payoff. Reinstatement involves making a single payment to catch up with everything due on a loan. By contrast, payoff involves paying the lender the total remaining balance of the loan. (Payoff before a foreclosure sale is commonly known as redemption, which is an equitable right available in every state.)
You can contact your mortgage servicer to determine the amount required to either reinstate or pay off the loan. If they fail to respond, this may be a defense to an eventual foreclosure. If you are not the borrower on the loan, you will need to have written authorization from the borrower to get the quote. Whether you are reinstating or paying off a loan, you should make sure to pay the full amount that is due. Otherwise, the lender could reject your payment and move forward with the foreclosure sale anyway. The lender’s attorney or the foreclosure trustee may confirm the amount with you in advance to avoid any confusion.
Reinstatement
As explained above, a homeowner can reinstate a loan by paying back any payments that are in default, as well as costs related to the default. They still will need to keep up with their monthly payments after reinstating the loan, or they will go into default again. Items that may be involved in a reinstatement, in addition to the missed payments, include late fees, attorney fees, costs of foreclosure proceedings, costs of property inspections, and a recording fee to cancel the foreclosure sale.
You should try to reinstate the loan as soon as you can. Paying at the last possible moment puts you at risk of falling victim to a mistake by a courier or a bank, which could result in the foreclosure going through. State law may provide a deadline for reinstatement, or your mortgage or deed of trust may provide a deadline. Reinstatement is not automatic unless it is provided by state law or the mortgage terms, but you may be able to reinstate your loan even if the lender is not technically required to allow it. The lender may find it easier to continue with the loan than to go through the foreclosure process.
Payoff
Paying off the loan will involve not only satisfying the entire remaining balance but also covering costs similar to those involved in a reinstatement. Thus, the balance that you see in your monthly billing statement is not the total amount that you need to pay off because it does not account for those extra costs. Similar to reinstating a loan, you should aim to pay off a loan as soon as possible so that logistical delays do not interfere.
You should plan to request a payoff quote at least five business days before making the payoff. Federal law requires mortgage servicers to provide a payoff statement within seven days of when you ask for it, unless certain circumstances apply. One of these circumstances is when the loan is already in foreclosure, in which case the mortgage servicer simply needs to respond within a reasonable time. This is another reason for getting the process started as soon as you can.
Challenging the Amount of a Reinstatement or Payoff
You have the right to contest what you believe to be an incorrect amount in a reinstatement or payoff quote. This requires sending a notice of error to the mortgage servicer. Under federal law, it has seven business days to correct an error regarding the payoff balance amount. Disputing the amount does not automatically stop a foreclosure, though, so you should think twice before delaying your payment over a small disputed amount.
