You can stop a foreclosure by reinstating or paying off the loan; however, homeowners are sometimes confused about the difference between them. Here are the main differences between these options, with more details below.
To reinstate a loan, you must first find out the amount needed to bring the loan current. You can get this information by requesting a "reinstatement quote" or "reinstatement letter" from the loan servicer. The reinstatement quote will give you the exact amount needed to cure the default (generally, the default is failing to make payments) and a good-through date for that amount. The amount you'll have to pay ordinarily includes:
Some states have a law allowing a delinquent borrower to reinstate the loan by a specific deadline, like 5:00 p.m. on the last business day before the sale date or some other deadline.
If state law doesn't specifically provide a right to reinstate, many mortgages and deeds of trust have a provision giving borrowers a deadline by which they can complete a reinstatement. Check your loan documents for a paragraph called "Borrower's Right to Reinstate After Acceleration" or something similar. See our Key Aspects of State Foreclosure Law: 50-State Chart to determine whether your state's laws provide a reinstatement right during the most commonly used foreclosure procedure for your state.
Even if the mortgage contract doesn't mention reinstatement, the lender might let you reinstate after considering the situation. However, be sure to ask for permission to reinstate a reasonable amount of time before a foreclosure sale.
To get specific information about whether your documents provide a right to reinstate in your particular situation or to get details about state-specific reinstatement laws, if any, consider talking to a local foreclosure attorney.
It's risky to wait until the last minute to reinstate your loan. The foreclosure sale will proceed if your funds aren't delivered on time. So, if a delay in the courier service happens or a bank processing error occurs, you could lose your home when the funds don't arrive in time.
If possible, present the funds in person to the proper contact designated in the reinstatement quote, or wire the money well before the deadline. Or, if you mail in your reinstatement funds, send the payment via an overnight courier so that you can track it.
To pay off a loan, you must find out the exact amount needed to satisfy the total loan amount. Request a "payoff quote" from your servicer, which is also sometimes called a "payoff letter" or "payoff statement."
The payoff letter will include exactly how much you must pay by a specified date to satisfy the debt. The quote will include the unpaid principal balance and interest, plus any fees and costs. The fees and costs are similar to those listed above for a reinstatement.
The payoff letter will also include instructions for how to send payment. The payoff quote might also describe how much you should adjust the payment if you decide to pay a few days before or after the given payoff date.
If you plan on paying off the loan, you usually need to request a payoff quote a minimum of five business days before the anticipated payoff date. The sale will occur if you don't deliver the funds before the foreclosure sale. Again, you could lose your home if a bank processing error or another delay occurs, and the funds don't arrive in time. So, make sure that you transmit the payoff funds with plenty of time for the transaction to be completed.
Under federal law, the servicer must send you a payoff statement within seven business days of your request unless:
If any of these exceptions apply, the servicer must provide the payoff statement to you within a reasonable amount of time.
Contact your loan servicer to find out what it costs to reinstate or pay off your loan. The servicer might direct you to the foreclosing party's attorney or the trustee's office to get the quote. You'll most likely have to send a request in writing. Be sure to keep proof of the request; if the company fails to provide the quote, you might be able to use this failure to fight the foreclosure.
If you want to request a reinstatement or payoff quote, but you're not a borrower on the loan, you'll have to provide written authorization from the borrower before the servicer will give you the reinstatement or payoff quote. Payoff and reinstatement figures aren't public information and are only available to a party with a recognized legal interest in the property.
Also, reinstatement and payoff figures aren't quoted verbally. You can only get them in a written statement.
When reinstating or paying off a loan, you must pay every penny included in the quote. If you tender payment and it's inadequate to reinstate or pay off the loan, your payment might be rejected, and the foreclosure could proceed. Often, the foreclosing party's attorney or the trustee will require that you contact them the day before sending in reinstatement or payoff funds to verify the amount.
If you think the total amount due shown on the reinstatement or payoff quote is incorrect, contact the servicer, law firm, or trustee (whoever provided the amount) by phone and in writing to dispute the amount.
For a notice of error concerning an inaccurate payoff balance amount, the servicer must correct the error, if there is one, within seven days, excluding legal public holidays, Saturdays, and Sundays. For most other kinds of errors, the servicer must correct the problem within 30 days, excluding legal public holidays, Saturdays, and Sundays. However, the servicer may generally extend the 30-day period by 15 days if it informs you about the extension and tells you why there is a delay. The 15-day extension isn't permitted if your notice of error is about a payoff statement. If the servicer doesn't respond to your notice of error, consult with an attorney.
Keep in mind that a foreclosure probably won't stop just because you have a dispute with the quote. You might want to consider paying the full amount, especially if the dispute is over a small amount, to ensure the foreclosure process stops.