Challenging the Amount Of A Reinstatement Or Payoff

By: Lance T. Denha, Esq.

Two ways in which you can prevent a foreclosure are reinstatement and payoff. Reinstatement involves making a single payment to catch up with everything due on a loan. By contrast, payoff involves paying the lender the total remaining balance of the loan. (Payoff before a foreclosure sale is commonly known as Redemption, which is an equitable right available as well).

Reinstatement

As explained above, a homeowner can reinstate a loan by paying back any payments that are in default, as well as costs related to the default. They still will need to keep up with their monthly payments after reinstating the loan, or they will go into default again. Costs and expenses that may be involved in a reinstatement, in addition to the missed payments, include late fees, attorney fees, costs of foreclosure proceedings, costs of property inspections, and a recording fee to cancel the foreclosure sale.

You should try to reinstate the loan as soon as you can. Paying at the last possible moment puts you at risk of falling victim to a mistake by a courier or a bank, which could result in the foreclosure going through. Your mortgage or deed of trust may provide a deadline. Reinstatement is not automatic unless it is provided by state law or the mortgage terms, but you may be able to reinstate your loan even if the lender is not technically required to allow it. The lender may find it easier to continue with the loan than to go through the foreclosure process.

Payoff

Paying off the loan will involve not only satisfying the entire remaining balance but also covering costs similar to those involved in a reinstatement. Thus, the balance that you see in your monthly billing statement is not the total amount that you need to pay off because it does not account for those extra costs. Similar to reinstating a loan, you should aim to pay off a loan as soon as possible so that logistical delays do not interfere.

When a reinstatement or payoff quote with a future good-through date is provided to a mortgagor, there is always the potential for additional fees and costs to accrue on the mortgagor’s account from the time the quote is issued to the time the quote expires or payment is tendered. In order to account for this, many servicers have made it their practice to include estimated fees and costs in the quotes, and to clearly mark them as estimates. The estimates are used when charges are expected to accrue prior to the good-through date, but the work has not yet been performed.

You have the right to contest what you believe to be an incorrect amount in a reinstatement or payoff quote. This requires sending a notice of error to the mortgage servicer. Under federal law, it has seven business days to correct an error regarding the payoff balance amount. Disputing the amount does not automatically stop a foreclosure, though, so you should think twice before delaying your payment over a small disputed amount.