What's the Difference Between Reinstatement and Payoff in Foreclosure?

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.

• Reinstating a loan. A "reinstatement" occurs when the borrower brings the delinquent loan current in one lump sum. Reinstating a loan stops a foreclosure because the borrower catches up on the defaulted payments. The borrower also has to pay any overdue fees and expenses incurred because of the default. Once the loan is reinstated, the borrower resumes making regular payments on the debt. Some state statutes and many mortgage contracts give homeowners the right to complete a loan reinstatement.
• Paying off a loan. A "payoff" occurs when the borrower pays the total amount required to satisfy the loan balance completely. Paying off the loan also stops a foreclosure. Homeowners in all states get the right, known as the "equitable right of redemption," to pay off the loan to stop a foreclosure sale.

Reinstating the Loan to Avoid Foreclosure

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:

• all of the back and current payments due, including principal and interest
• any applicable late fees
• the cost of any property inspections
• the attorneys' or trustee's fees and costs for the foreclosure procedure
• other expenses incurred to preserve and protect the lender's interest in the property and
• often, a recording fee for the notice of cancellation of the sale.

How Long Do I Get to Reinstate My Mortgage Loan?

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 a Good Idea to Reinstate As Soon As Possible

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.

Paying Off the Loan to Avoid Foreclosure

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.

Deadline to Pay Off the Loan

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.

How Soon the Servicer Must Send a Payoff Statement If You Request One

Under federal law, the servicer must send you a payoff statement within seven business days of your request unless:

• The loan is in bankruptcy or foreclosure.
• The loan is a reverse mortgage.
• A natural disaster or other similar circumstances happened.
• The creditor or servicer specified reasonable requirements for making the payoff request, such as requiring you to send the request to a specific mailing address, and you didn't follow the directions. (Usually, you can find the information for where to send your request on your loan servicer's website or by calling the servicer and asking.)

If any of these exceptions apply, the servicer must provide the payoff statement to you within a reasonable amount of time.

Requesting Your Reinstatement or Payoff Quote

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.

Be Sure to Pay in Full

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.

What If I Disagree With the Amount Shown on the Reinstatement or Payoff Quote?

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.

Sending the Servicer a Notice of Error

Under federal mortgage servicing regulations, you can send your servicer a "notice of error." The notice of error, which is a letter disputing the amount in the quote, should include:

• your name and information that allows the recipient to identify your mortgage loan account and
• a description of the error, like failing to provide an accurate payoff 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.

Consider Paying the Disputed Amount to Stop the Sale

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.