Reinstatement: The process by which a homeowner brings current their mortgage to avoid foreclosure.
Reinstatement: The process of restoring a mortgage to its original condition and resuming your agreed-to payment terms and schedule after paying any outstanding payments and fees.
Reinstatement: Bringing Your Account Current to Avoid Foreclosure
When a homeowner defaults on their mortgage loan, action must be taken in order to avoid foreclosure. Given that it can take months or even years for the bank to sell the property to cover the loan, homeowners have several options available to them before they lose their home. One possibility is reinstatement, which involves paying the outstanding mortgage debt, as well as costs and fees, to bring their account current.
Most homeowners are afforded the right to reinstate their loan by the terms of their mortgage contract, as well as by state laws. Once reinstatement of the mortgage loan takes place, the homeowner is obliged to resume making monthly payments.
If a homeowner opts for reinstatement, they should contact their bank to find out how much the cost of reinstatement is, as well as how long they have to pay the debt. The quote from the bank should list all outstanding payments, late fees, attorney fees and the sale cancellation fee.
Washington attorney Lambros Politis advises clients to not “accept any verbal reinstatement payoff amount, whether on the phone or in person. Make the lender give you the quote in writing. Verbal reinstatement amounts may be inaccurate and they may change. They are also impossible to verify later. If you send payment based on a verbal quote, the lender could change their mind and you would have no way to prove what they originally told you.”
Homeowners are advised to act quickly in order to gather all required documentation. Given that reinstatement is time sensitive, homeowners should keep tabs on the payment process in order to ensure all payments are properly managed.
Reinstatement, however, is not for everyone. Paying a lump sum, even if possible, may not be in a homeowners best interest. If they are vulnerable to defaulting again, they may want to consider other options, such as loan modification, which permanently changes at least one of the terms of the mortgage loan. Modification can lead to lower interest rates and a reduction in principal.
Since most banks want to avoid the costs associated with foreclosure, they may be willing to write off part of the principal and fees in order to get the homeowner back on their feet. Another option is a short sale or deed in lieu of foreclosure with a deficiency judgment waiver, which allows a homeowner to discharge their debt.
Ohio, for example, sponsors Save the Dream Ohio, which is administered by the Ohio Housing Finance Agency (OHFA) and funded by the U.S. Department of the Treasury’s Hardest Hit Fund. Save the Dream Ohio works with housing counseling agencies to help homeowners avoid foreclosure. The program offers up to $35,000 in assistance in order to help homeowners bring their delinquent first mortgage current and make up for up to nine months in mortgage payments.
Save the Dream Ohio has had numerous success stories, including the following:
“Lynn, a resident of Hancock County, was at risk of losing her home of 14 years when she was laid off in April 2011. An x-ray technician for 16 years, Lynn struggled to find another full-time job in the local area. Living on unemployment, Lynn said it became increasingly difficult to keep a roof over her head, pay her monthly expenses and provide for her 13-year old son.
“She turned to Hancock County Job and Family Services to see what assistance was available and was informed of Save the Dream Ohio. She applied for the program in June 2011 and was approved in the winter of 2012. Lynn received Mortgage Payment Assistance for 15 months,” according to the Save the Dream Ohio website.
“I was absolutely elated that I wouldn’t lose my house,” Lynn said. “I was so thankful for the program.
“At first when you lose your job, you’re just not thinking clearly and you’re so devastated,” she said. “The assistance gave me the opportunity to say ‘Ok, what are you going to do to change things around?’.”
“I would tell anyone to just apply and stick with it,” she added. “It’s really worth it. I don’t know what I would have done without [Save the Dream Ohio] to keep my home.”