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Could Reinstating Your Loan Help You Stop Foreclosure?


Homeowners may be able to reinstate their loan to help stop foreclosure on their home.  Reinstatement is available to homeowners who can demonstrate to a lender that they have available funds to pay back the outstanding balance on their mortgage in a short time (up to 24 months).  This solution works best for homeowners who can make up their total past due balance through a combination of lump sum payments and/or “extra” payments (spread out over a 12-24 months) in addition to their regular mortgage payment.

To better understand the steps a homeowner may have to take to reinstate his loan let’s first look at the different options he has for reinstatement

Total reinstatement involves bringing the delinquent loan current in one payment.  The homeowner is required to provide a certified check that will include all past due payments, late charges and any fees and costs, which have been assessed to the account.

A repayment plan involves making up the amount past due over a period of months by paying a full payment plus a partial payment on the past due balance each month.  This plan requires the homeowner give the bank a cash contribution equivalent to 30-50% of total arrears (total of late payments, bank fees and attorney’s fees). 

A forbearance plan involves reduction or suspension of payments for a period of time followed by a period of time during which the deferred payments are made up, similar to the repayment plan. 

Loan modification includes changing the original terms of the mortgage through one or a combination of the following methods:  increasing the loan balance to cover the delinquent interest and/or increasing the number of payments to pay off the entire loan.  A loan modification requires the prior approval of the bank.  A modification fee will be charged as well as a cash contribution toward compliance with any additional requirements of the bank. 

Certain loans qualify for a partial claim program, in which the homeowner is required to contribute cash equivalent to 30-50% of total arrears, and the remainder of the arrears is loaned to the homeowner interest fee.  The homeowner will have the remaining term of the mortgage to pay off this loan in full.

Homeowners may choose to reinstate their loan because it helps the homeowner keep his or her house and avoid a foreclosure:  while also avoiding filing for bankruptcy, paying lender fees and trying to refinance your home.  Additionally, the homeowner gets to keep his original loan, which is especially helpful if he negotiated a good interest rate when he originally took out the loan.   

Reinstating your loan to stop foreclosure also has its negatives including coming out of pocket with some funds to get into a plan.  This is usually a minimum of 30% of the outstanding total past due balance, but could be as high as 50%.  Obviously, if the homeowner doesn’t have the funds, foreclosure reinstatement is not an option.  Furthermore, after funds are sent in, the remaining outstanding past due balance is then added onto the loan amount, and spread out over anywhere between 6 and 24 payments (months).  Before entering into a foreclosure reinstatement plan, the homeowner should make sure that he has the funds available to get into the plan, and also to continue making the new, higher payments.

This option is not for everyone, as there is an up front fee to enter into this option.  If a homeowner chooses to move forward with this option it is something you could do on your own.  However, many people have a difficult time getting through to the loss mitigation department of their bank and they must be prepared to be aggressive, persistent and to stay on top of the lender.  In addition, many people don’t have the bank contacts or negotiating skills to get the best possible plan.  Finally, if you have a job to go to each day; do you have actually have the time, and appropriate levels of privacy at work to work on this each day? 

It’s important to find someone who can provide professional assistance in helping you reinstate your loan and give you peace of mind in knowing that an experienced professional is handling your reinstatement negotiations.


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