Three things in life are certain: taxes, iPhone updates and unexpected expenses.
Unexpected expenses can cost homeowners a lot – even their homes. If you’re struggling to make your mortgage payments because of a medical emergency, an accident or the upheaval we all experienced during the COVID-19 lockdowns, you’re not alone. In March 2021, over 2 million homeowners were more than 3 months behind on their mortgage payments.
The good news is that your homeownership story doesn’t have to end with foreclosure. Lenders typically offer several ways for homeowners facing foreclosure to get back on track.
If your loan is in default, take a deep breath. A mortgage reinstatement is one option that can help you avoid foreclosure and stay in your home.
How Does Mortgage Reinstatement Work?
Mortgage reinstatement is the process of paying off late payments and fees on a defaulted home loan to restore it to good standing. Once the mortgage is reinstated and you’ve resumed regular mortgage payments, you no longer need to worry about foreclosure.
Mortgage reinstatement is typically one of the last steps you can take to avoid foreclosure. BTW, if you’re in a situation where you’ve only missed a payment or two, talk to your lender about mortgage loan modification, which is less expensive, or even refinancing.
As you consider your options, it’s helpful to understand the foreclosure timeline lenders must follow under federal law:
- 36 days after a missed payment: The lender must make a genuine effort to get in touch with you and outline your options.
- 45 days after a missed payment: Before this date, your bank must send you a letter that explains how to get your loan back on track, including loss mitigation agreements and housing counseling.
- 45 – 120 days after a missed payment: Depending on the terms of the mortgage, the lender may send you a notice of default. Mortgage reinstatement becomes an option once your loan has gone into default.
- 120 days after a missed payment: The lender is legally allowed to start the foreclosure process. How long you’re delinquent before foreclosure will depend on your lender. Some lenders may wait longer than 120 days.
How do I start the reinstatement process?
To start the mortgage reinstatement process, you’ll need to contact your lender or the servicing company where you send your monthly payments and request a reinstatement. The lender will give you a letter that outlines how much you’ll need to pay to reinstate your loan. After you make the payment, the lender will restore the loan, keeping its original terms and restarting its regular payment schedule.
How long you have to reinstate your mortgage depends on the terms of your mortgage, your lender and where you live.
Many lenders will put off foreclosure to allow homeowners to catch up on their delinquent payments. But once a mortgage goes into foreclosure, state law takes over.
What is the reinstatement period?
The reinstatement period – the amount of time you have to restore a mortgage in foreclosure – varies by state. For example, in California, you can request to reinstate a mortgage up to 5 days before the home is sold at auction. Texas gives you 20 days from the start of the foreclosure process.
What’s Included in a Mortgage Reinstatement Letter?
The mortgage reinstatement letter, also known as a mortgage reinstatement quote, lays out exactly what you’ll need to do to get current on your loan.
The letter contains a few key pieces of information:
- Amount owed: Missed payments, late fees and default charges will be listed in the letter. If your mortgage has entered into foreclosure, you’ll typically see additional foreclosure fees.
- Due date: You must pay the amount you owe by this date. If the agreement allows for multiple payments, it will include multiple payment due dates.
- Expiration date: The mortgage reinstatement quote will expire on this date, usually 15 – 30 days from the day it was issued. If you can’t make your payment(s) before the expiration date, you’ll need to request an updated quote from your lender.
- Payment instructions: Your lender will tell you where to send the money. Pay close attention to the instructions. If you’re in a nonjudicial foreclosure (a foreclosure without a court order), you may need to send your payment to a trustee, not your lender.
But there’s still more work to be done after reinstating your mortgage. Because foreclosures can involve multiple parties, it’s important to follow up with each party and confirm your mortgage reinstatement with them. Make sure the first call you make is to your lender. Confirm that they received the payment, that all fees have been paid, and that your account is no longer flagged as default.
Once the reinstatement process is done, you should receive a written confirmation in the mail. Your lender will reissue your monthly mortgage statements at their pre-default amount.
Can I Negotiate Mortgage Reinstatement Terms With My Lender?
If you’ve been doing the mental math, you’ve probably realized that mortgage reinstatement isn’t cheap. Add up a few months of back interest, back payments and late fees, and you could be looking at a rather large bill.
Typically, mortgage reinstatement terms can’t be negotiated. But check with your lender if you can’t pay the entire amount to reinstate your loan right away. Your lender might allow you to reinstate your loan with two or more payments or let you pay your missed payments and late fees at the end of the mortgage term.
Mortgage Reinstatement, Redemption and Payoff: What’s the Difference?
“Redemption” and “reinstatement” are two terms you’ll hear a lot when your mortgage is in default or foreclosure. And the difference between the two terms is significant.
With a mortgage reinstatement, you pay off past due payments and late fees to make your mortgage current. With a mortgage redemption, you pay off the entire mortgage balance, including fees. A mortgage redemption usually happens after the reinstatement period ends, but before the home is sold. In some states, you can redeem the property even after the house is sold.
After paying the mortgage redemption amount, you’ll own the house outright and won’t have to worry about foreclosures from your lender. Just keep in mind that you could still face foreclosure from other creditors with a lien on your house, including HELOC lenders, second mortgage lenders and homeowners associations (HOAs).
A loan payoff is similar to a redemption – you pay off the total loan balance and any fees. While a mortgage redemption usually happens just before or after a foreclosure auction, you can pay off your entire mortgage at any point over the life of the loan. You’ll be free from monthly mortgage payments after payoff, but keep in mind that some loans include prepayment penalty clauses. Check if your loan includes a prepayment penalty clause and the actions that could trigger it.
What Happens if I Can’t Afford Mortgage Reinstatement?
Mortgage reinstatement can be expensive, especially if your monthly payments are high. If you can’t afford to make a lump-sum payment, consider other options like loan modification and refinancing:
- Forbearance: Your lender temporarily pauses or lowers your monthly mortgage payments.
- Loan modification: Your lender changes the length of the loan, the interest rate or other terms to make your payments more affordable.
- Refinancing: You replace your existing mortgage with a new loan with more favorable terms that lower your monthly mortgage payments.
- Bankruptcy: Filing bankruptcy can either stop a foreclosure or discharge your debts, and you may not owe money to creditors after the sale. However, bankruptcy usually damages your credit. This is generally an option of last resort and should only be considered after consulting with a bankruptcy attorney.
Remember – your lender would rather work with you to bring your mortgage to good standing than foreclose on your home. Talk to your lender. They may offer solutions you never considered or knew existed.
You Can Stay in Your Home
Foreclosure is scary – but it’s not inevitable. Mortgage reinstatement can be the lifeline that helps you recover from a defaulted or foreclosed mortgage and keeps you in your home. Talk to a real estate professional to understand your options.
Consumer Financial Protection Bureau. “New Report From Consumer Financial Protection Bureau Finds Over 11 Million Families At Risk Of Losing Housing.” Retrieved May 2022 from https://www.consumerfinance.gov/about-us/newsroom/new-report-from-consumer-financial-protection-bureau-finds-over-11-million-families-at-risk-of-losing-housing/
Consumer Financial Protection Bureau. “Foreclosure avoidance.” Retrieved May 2022 from https://files.consumerfinance.gov/f/201312_cfpb_foreclosure-avoidance-procedures.pdf
California Courts. “Foreclosure.” Retrieved May 2022 from https://www.courts.ca.gov/1048.htm?rdeLocaleAttr=en
Texas State Law. “Foreclosure.” Retrieved May 2022 from https://guides.sll.texas.gov/foreclosure/before-the-sale#:~:text=In%20a%20nonjudicial%20foreclosure%2C%20Texas,receiving%20the%20notice%20of%20default.