Can a Mortgage Company Deny Reinstatement?
Yes, a mortgage company can deny a reinstatement request, although they are generally obligated to consider it. While borrowers facing foreclosure often hope for reinstatement – bringing their mortgage current to avoid the sale of their home – several factors can lead to a denial. Understanding these factors is crucial for homeowners struggling to keep their property.
This article explores the circumstances under which a mortgage company might deny a reinstatement request and what options borrowers might have if faced with a denial.
What is Mortgage Reinstatement?
Reinstatement involves bringing a delinquent mortgage loan current by paying all past-due amounts, including principal, interest, late fees, and potentially other charges. This effectively cures the default, preventing foreclosure proceedings from moving forward. However, it's important to note that reinstatement is not a guaranteed right. The lender has the right to refuse it under certain conditions.
Why Would a Mortgage Company Deny Reinstatement?
Several reasons might prompt a mortgage company to deny a reinstatement request. These often involve circumstances beyond simply being behind on payments:
1. Significant Delinquency: While the specific timeframe varies by lender and loan type, extremely long periods of delinquency significantly reduce the likelihood of reinstatement. The longer the loan is in default, the more likely the lender is to have incurred significant losses and legal costs, making reinstatement less feasible.
2. Prior Reinstatement Attempts: If a borrower has previously been reinstated but subsequently defaulted again, the lender may be hesitant to offer another chance, viewing it as a high risk. Repeated failures to maintain payments demonstrates a lack of financial stability.
3. Fraud or Misrepresentation: If the lender discovers fraud or misrepresentation in the original loan application or during the reinstatement process, they may deny the request. This includes providing false information about income or assets.
4. Property Damage or Deterioration: Severe damage to the property, making it significantly less valuable, could lead to a denial. The lender's collateral (the house) is at risk, and they might prefer to move forward with foreclosure.
5. Pending Bankruptcy: If the borrower has filed for bankruptcy, the lender is likely to put the reinstatement process on hold pending the outcome of the bankruptcy proceedings. Reinstatement may be impossible depending on the bankruptcy plan.
6. Loan Modification Denial: If the borrower has already applied for and been denied a loan modification, reinstatement might also be denied, as the lender might conclude that the borrower cannot manage their finances appropriately.
7. Unpaid Property Taxes or Insurance: Failure to pay property taxes or homeowner's insurance, even if mortgage payments are attempted to be brought current, can lead to denial. These are essential components of maintaining the property, protecting the lender's investment.
What Happens if Reinstatement is Denied?
A denial of reinstatement means the foreclosure process will likely continue. Borrowers should immediately consult with a housing counselor or attorney to explore their legal options. These might include:
- Negotiating a short sale: Selling the property for less than the outstanding mortgage balance.
- Filing for bankruptcy: This can temporarily halt foreclosure proceedings and offer potential debt restructuring options.
- Exploring other foreclosure prevention options: This could include loan modifications, forbearance agreements, or deed-in-lieu of foreclosure.
How Can I Increase My Chances of Reinstatement?
To maximize your chances of successful reinstatement, demonstrate financial stability and a commitment to resolving the delinquency. This includes:
- Providing documentation of current income and expenses: Show the lender you can manage your finances.
- Offering a concrete repayment plan: Clearly outline how you will bring the loan current.
- Communicating proactively with your lender: Don't wait until the last minute. Contact them early to discuss your situation.
Reinstatement is a possibility, but it's not guaranteed. Understanding the potential reasons for denial and taking proactive steps to address your financial situation is vital. Seek professional advice promptly if you are facing foreclosure.
