Falling behind on a mortgage or car loan can be overwhelming, but you might have a vital option to keep your home or vehicle: the right to reinstate your loan. This right enables you to halt foreclosure or repossession by paying all past-due amounts and associated fees, thereby restoring your loan to good standing.
How Does the Right to Reinstate Work?
When you miss payments, your loan enters default, and your lender may start foreclosure. Before the property is sold, lenders typically notify you of your right to reinstate, which means paying the total amount owed—including missed payments, late fees, and legal or administrative costs—by a specific deadline.
To reinstate, you must pay the full reinstatement amount in one payment, often shortly before the scheduled foreclosure sale. Partial payments usually are not accepted. Successfully reinstating stops the foreclosure, and you resume making regular monthly payments under the original loan terms.
Example Scenario
If a borrower misses three monthly mortgage payments of $1,800 each, plus $90 in late fees per missed payment and $1,000 in lender legal fees, the reinstatement amount would include:
- Missed payments: 3 x $1,800 = $5,400
- Late fees: 3 x $90 = $270
- Legal fees: $1,000
Total reinstatement amount = $6,670
Paying this amount before the deadline stops the foreclosure process.
Reinstatement Compared to Other Loan Solutions
- Reinstatement: Pays missed amounts and fees to restore the loan to original terms. Stops foreclosure.
- Loan Redemption: Pays the entire remaining loan balance to own the property outright.
- Loan Modification: Changes the loan terms permanently to make payments more affordable.
Learn more about loan modification and foreclosure on FinHelp.
Tips for Exercising the Right to Reinstate
- Act Quickly: Deadlines are often tight, commonly a few days before foreclosure sale.
- Request a Written Payoff Statement: Ensure you know the exact amount to pay.
- Communicate With Your Lender: Early contact might allow for alternative solutions like forbearance agreements or payment plans.
- Seek HUD-Approved Counseling: Housing counselors can provide free assistance.
According to the Consumer Financial Protection Bureau, understanding and timely exercising the right to reinstate can be a crucial step in avoiding foreclosure. For official guidance, visit CFPB’s resource on reinstatement.
This option offers borrowers facing temporary financial setbacks a valuable chance to keep their property by catching up on missed payments. Being proactive and informed is essential to successfully using the right to reinstate.