You may be able to reinstate or cure the default on your mortgage for a specified period of time after the default. State laws govern the amount of time you have to reinstate a defaulted mortgage. Usually, to reinstate a mortgage, you must pay all outstanding payments as well as late fees, bank fees and court costs.
For example, in New Jersey, pursuant to N.J.S.A.2A:50-57(A), “Until the day the final judgment of foreclosure is entered, a homeowner has the right to cure any default in mortgage payments, de-accelerate the loan, and reinstate the mortgage, regardless of whether an answer was filed.”
Oftentimes, homeowners face temporary financial setbacks that result in the initiation of a foreclosure process, yet if they are able to pay the outstanding balance and make regular payments again, they can reinstate their loan.
Reinstating Before Foreclosure
If you anticipate a foreclosure but are able to cure the default on your loan, you should request a written reinstatement quote from your bank, which may include late fees. By paying this amount, the default will be cured and you can make regular mortgage payments again, thereby cancelling any foreclosure proceedings.
Reinstating After Foreclosure
If you fall behind and want to pay the outstanding balance on your mortgage but your bank had initiated foreclosure proceedings, contact the trustee who issued the Notice of Trustee’s Sale (NOTS). After a bank begins the foreclosure process and contracts a trustee, the latter is responsible for the reinstatement quotes and payments. The following items should be considered when dealing with a trustee:
- The trustee’s legal fees will be added to your total reinstatement amount.
- The reinstatement quote should be requested from the trustee, not the bank.
- The request for a reinstatement quote should be requested in writing and should include your name, loan number, and the trustee sale number found on the NOTS.
- The requested should be faxed to the number that appears on the NOTS, as well as to your bank. Verify that the fax has been received correctly.
- The trustee should specify what forms of payment they accept. In most cases, trustees will request a cashier’s check.
How Reinstatement Affects Foreclosure
If you reinstate before the specified deadline, the trustee will void the foreclosure and withdraw from the case, allowing you to make your original mortgage loan payments. The trustee should provide you with written verification that the foreclosure has been canceled. If you need more time to reinstate the loan, contact the trustee to see if the deadline negotiable.
Negotiating Reinstatement Fees
Review the late fees associated with the reinstatement quote since some may be questionable. When in doubt, request a full breakdown of each fee, ensuring they only reflect the late fees for missed mortgage payments.
Submit the following information to the trustee:
- A signed and dated letter stating your intention to reinstate the mortgage loan.
- A plan for funding the reinstatement, as well as the date that the funds will be available.
- A request for a foreclosure postponement of a specified amount of time.
- Proof of your funding source, whether it be a retirement account statement or a notarized letter confirming a private loan from friends or family.
The information should be faxed to the bank and the trustee. You should follow up on the fax and ask if it has been received and when it will be reviewed.
Some trustees may accept a partial payment in order to postpone the foreclosure, allowing you time to come up with funding for the reinstatement. Partial payments may not be refundable, therefore ensure you will have the full amount to reinstate in the near future. You should request written confirmation that the partial payment will postpone the foreclosure.
Loan Modification vs. Reinstatement
Reinstatement is only an option if you are able to return to paying the original monthly mortgage amount. If not, you may want to consider loan modification or a short sale. Mortgage loan modification will reduce your monthly payments and a short sale will allow you to find a more affordable housing solution.