What Is a Mortgage Reinstatement & How Does It Work?

A mortgage reinstatement offers a path for homeowners to bring a defaulted loan current and prevent a foreclosure. It involves a financial commitment to rectify the past-due status of a mortgage. This process aims to restore the loan to its original standing, allowing the homeowner to resume regular payments as if no default had occurred.

Understanding Mortgage Reinstatement

Mortgage reinstatement is a process where a homeowner pays all overdue amounts on a defaulted home loan in a single lump sum to restore it to good standing. This action cures the mortgage default, stopping any ongoing foreclosure proceedings by making the loan current. The homeowner satisfies all outstanding financial requirements, including back payments and associated fees. Once these amounts are paid, the loan is reinstated, and the homeowner can resume making regular monthly mortgage payments according to the original loan schedule.

Determining the Reinstatement Amount

To pursue a mortgage reinstatement, homeowners must ascertain the precise amount required to bring their loan current. This figure is typically provided by the mortgage servicer in a reinstatement quote or letter. This quote outlines all the financial components that constitute the total reinstatement amount.

Components generally include all missed principal and interest payments, late fees, and any advances made by the servicer for property taxes or insurance premiums from an escrow account. If foreclosure proceedings have begun, the quote will also include lender-incurred costs such as legal fees, property inspection fees, and publication costs.

It is important to request this quote in writing, as verbal estimates may not be accurate or verifiable. Reinstatement quotes typically have an expiration date, often ranging from 15 to 30 days from issuance. If payment is not made within this timeframe, a new quote must be requested, which may reflect additional fees or accrued interest.

The Reinstatement Process

Once a homeowner obtains the official reinstatement quote, the next step involves communicating the intent to reinstate to the mortgage servicer. This notification is important to ensure the servicer is aware of the homeowner’s plan to bring the loan current and can provide any specific instructions for payment. It is advisable to get confirmation of this intent in writing.

The full lump-sum payment specified in the reinstatement quote must then be submitted to the mortgage servicer. This payment is typically required through certified funds, such as a cashier’s check, money order, or wire transfer, to ensure timely and verifiable receipt. Partial payments are generally not accepted for reinstatement and may not halt foreclosure actions.

After the payment is successfully made and processed, the mortgage servicer confirms its receipt and updates the loan status. The homeowner can then resume making regular monthly mortgage payments according to their original schedule, with the loan account restored to its active, current status.

Reinstatement Compared to Other Options

Mortgage reinstatement differs from other foreclosure prevention options. It specifically focuses on bringing a defaulted loan completely current by paying all missed amounts and associated charges in one payment. This action restores the original loan terms without altering them.

A loan modification, by contrast, involves a permanent change to the original terms of the mortgage loan. This could include adjusting the interest rate, extending the loan term, or adding missed payments to the principal balance, aiming to make monthly payments more affordable. Unlike reinstatement, a modification does not require a lump-sum payment to cure the default.

Another option is a repayment plan, which is an agreement with the servicer to pay the past-due amounts over a specific period, in addition to the regular monthly payments. This differs from reinstatement because it spreads out the delinquent amount over several months rather than requiring a single lump sum.

Options like a payoff or refinance involve paying off the entire outstanding mortgage balance. A payoff completely satisfies the loan, while a refinance replaces the existing mortgage with a new one, often with different terms.