Mortgage Reinstatement: What Is It and How Does It Work?

If you’re behind on your mortgage loan payments and are now getting back on your feet, a mortgage reinstatement can help you bring your mortgage current. If you reinstate your loan and start making regular payments again, you won’t have to fret over a potential foreclosure or losing your property. Keep reading and we’ll help you learn more about what a mortgage reinstatement is, how it works, and what you can do if you’re not able to reinstate your mortgage.

Mortgage Reinstatement

If you’re struggling to make your mortgage payments and keep your home, there are several options you can pursue before you have to pack your bags and find a new home. One of those options is a mortgage reinstatement. Reinstating your mortgage lets you pay off your past-due debt and make your loan current so you don’t have to worry about losing your home through foreclosure. Once you pay the amount required to reinstate your loan, your regular mortgage payments will be reinstated and the threat of foreclosure will be gone.

Mortgage reinstatement is a fast way to get your loan back to a favorable status so you can keep your real estate. But you’ll need the money to pay off your debt. It’s a good option if you were temporarily unemployed or disabled and received a large check for the months you weren’t paid, or if you came across some money from a lawsuit, inheritance, or the sale of some of your assets.

Reinstating your mortgage is good for you as a homeowner, but it’s also good for mortgage holders and loan servicers. They tend to favor mortgage reinstatement over foreclosure because it’s cheaper and easier than going through the foreclosure process and foreclosure sale. But you’ll have to let your mortgage company servicer know you want a mortgage reinstatement. Mortgage lenders won’t automatically reinstate your loan.

If you don’t have money to pay off the full amount of your missed mortgage payments, there are other options such as forbearance, refinancing your loan, loan modification, and bankruptcy.

Reinstatement Process

The COVID-19 pandemic opened up more opportunities for mortgage reinstatement. But even if your state doesn’t have any new protections for mortgage reinstatement, your lender may still allow you to do it. If your mortgage contract doesn’t mention mortgage reinstatement, that doesn’t mean you don’t have an opportunity to reinstate your loan. 

That said, if you’re interested in a mortgage reinstatement, know that they follow a specific process and must be done within a certain timeframe, so contact your mortgage servicer early to start the reinstatement process.

Mortgage Reinstatement Letter (Reinstatement Quote)

Once you’ve defaulted on your loan, your lender must send you a mortgage reinstatement letter. If you haven't received a mortgage reinstatement letter, contact your mortgage servicer and ask for a quote for reinstatement. Be sure to ask for the total amount you need to pay to reinstate your mortgage, including late fees, expenses, pre-foreclosure fees, back payments, and current payments. 

Your quote at the end of one month could be different the first week of the next month, depending on when your payments are due. Ask them to send you a mortgage reinstatement letter so you have the information in writing. The mortgage reinstatement letter will have contact information and list the due date for the amount owed and how much you need to pay to reinstate your loan. 

If for some reason your lender doesn’t give you a quote, you might have a reason to fight the foreclosure proceedings, since they are required by federal law to send borrowers a mortgage reinstatement letter. A consumer protection attorney can look at your case and give you foreclosure advice.

What if the Quote Is Incorrect?

Make sure you double-check the math on the payoff quote you get to reinstate your loan. It’s possible that your servicer didn’t include a payment you made or that the servicer posted duplicate non-payments. Typos and computer glitches happen, and they usually aren't in the borrower’s favor.

If you believe the amount you were quoted is incorrect, you can call your mortgage servicer and send a notice of error. Explain specifically what the error is, and include any relevant dates and amounts. Your request must be specific, or they can ignore it. The Consumer Financial Protection Bureau has a sample notice of error letter form and instructions that can help guide you. Once you report an error, the servicer must investigate it. Then, the servicer has to correct the error or explain why it wasn’t corrected. 

The servicer must let you know they received your request within five days, and they must respond within seven days. They can extend the investigation timeframe for another 15 days, but they must request your permission for the extension. These deadlines do not include weekends or public holidays.

If You Can’t Afford To Reinstate Your Mortgage

If you’ve fallen on hard times, it’s not easy to come up with a lump-sum payment to reinstate your mortgage. If you can’t reinstate your mortgage, contact your mortgage servicer to see what other options you have. 

You might qualify for a mortgage deferment that lets you tack on payments to the end of your loan, or you might be able to modify your loan and make higher monthly payments to catch up on past-due debt. You might also be able to do a loan modification to make lower monthly mortgage payments by extending the term of your loan and reducing the interest rate. A loan modification attorney can work with you to try and get loan terms that are realistic for you. The money you save in the long run should cover the attorney fees.

There is also the option of bankruptcy if you can’t reinstate your mortgage. If you file for a Chapter 13 bankruptcy, you might be able to restructure your debt with a 3-5 year repayment plan. You could also get rid of some of that past-due debt that’s still haunting you. If you’re struggling to get caught up because of medical bills and credit card debt, a Chapter 13 bankruptcy might be a good option for you. You can restructure your debt to get manageable payments and get a fresh start.

Let's Summarize...

If you had a temporary setback that put you behind on your mortgage payments but you’re able to catch up now on the past-due payments, mortgage reinstatement might be a good option for you. Even if you don’t have that kind of money, you could still work with the mortgage servicer to create a repayment plan through a loan modification. You can also file Chapter 13 bankruptcy and keep your house by signing and sticking with a repayment plan. Call your mortgage servicer and find out how much you owe to reinstate your loan. If you can’t pay, look at the many other options that might be available for you or talk to a bankruptcy attorney.