Real Estate Principles: Chapter 68: Reinstatement & Redemption

acceleration

A demand for immediate payment of all amounts remaining unpaid on a loan or extension of credit by a mortgage lender or carryback seller.

redemption

A property owner or junior lienholder's right to clear title to property of a mortgage lien prior to the completion of a trustee's sale or following a judicial foreclosure sale by paying all amounts due on the mortgage debt, including foreclosure charges.

reinstatement

A property owner or junior lienholder's right to reinstate a mortgage and cure any default prior to five business days before the trustee's sale by paying delinquent amounts due on the note and trust deed, plus foreclosure charges.

future advances

A trust deed provision authorizing a mortgage holder to advance funds for payment of conditions impairing the mortgage holder's security interest in the mortgaged property, such as delinquent property taxes, assessments, improvement bonds, mortgage insurance premiums or elimination of waste. [See RPI Form 450 $2.5]

power-of-sale provision

A trust deed provision authorizing the trustee to initiate a non-judicial foreclosure sale of the described property on instructions from the beneficiary.

Intro

After reading this chapter, you will be able to: understand how a property owner orjunior lienholder terminates foreclosure proceedings by reinstating or redeeming a mortgage; distinguish the timeframes an owner has to cure a default and reinstate the mortgage from periods for trustee's notices, postings and advertising periods; advise a client on their financial options when faced with foreclosure; and recognize defaults curable only by redemption. Key Terms: acceleration, redemption, future advances, reinstatement, power-of-sale provision. For a further study of this discussion, see Chapter 47 of Real Estate Finance. Trust deeds securing a debt obligation contain a boilerplate provision authorizing mortgage holders to call due and payable all amounts remaining unpaid after a material default on the trust deed, called an acceleration clause. Similarly, the trust deed under its power-of-sale provision authorizes the trustee to initiate a non-judicial foreclosure sale of the property on a declaration of default and instructions to foreclose from the beneficiary. Under the power-of-sale provision, the trustee records a notice of default (NOD) to initiate the trustee's foreclosure procedures when instructed by the beneficiary to do so. As a result of the tandem effect of the acceleration clause when an NOD is recorder, all sums remaining to be paid on the note and trust deed become due and immediately payable, subject to the owner's and junior lienholder's reinstatement rights. After an NOD is recorded and prior to five business days before the trustee's sale, the owner can terminate the foreclosure proceedings by paying: the delinquent amounts due on the note and trust deed as described in the NOD and foreclosure charges, called reinstatement;' or the entire amount due on the note and trust deed, plus foreclosure charges, called redemption. A trust deed on which a foreclosure has been initiated is reinstated when the beneficiary receives: all amounts referenced as delinquent in the NOD, including principal, interest, taxes and insurance (collectively known as PITI), assessments, and advances; installments that become due and remain unpaid after the recording of the NOD; any future advances made by the beneficiary after the recording of the NOD to pay taxes, senior liens, assessments, insurance premiums, and to eliminate any other impairment of the security; and costs and expenses incurred by the mortgage holder to enforce the trust deed, including statutorily limited trustees fee's or attorney fees. After an NOD is recorded, an owner or junior lienholder may bring current any monetary or curable default stated in the NOD prior to five business days before the trustee's sale, called the reinstatement period. If the sale is postponed, the reinstatement period is extended, ending the day before the fifth business day prior to the postponed sale date. [See Figure 1] Until the NOD is recorded by a trustee, the beneficiary is compelled to accept the tender of all delinquent amounts noticed in the NOD. After recording the NOD, the mortgage holder's trustee needs to allow three months to pass before advertising and posting notice of the date of the trustee's sale.5 [See Figure 1] The trustee needs to begin advertising and post a Notice of Trustee's Sale (NOTS) at least 20 days before the date of the sale. The property may be by the trustee no sooner than the twenty-first day after advertising begins and the posting of notice occurs.º [See Figure 1

Summary

Trust deeds contain a boilerplate acceleration provision authorizing mortgage holders to call the mortgage after a material default on the trust deed. Similarly, the trust deed's power-of-sale provision authorizes the beneficiary to instruct the trustee to initiate a non-judicial foreclosure sale of the property. After the NOD has been recorded and prior to five business days before the trustee's sale, the owner may terminate the foreclosure proceedings by paying: the delinquent amounts due on the note and trust deed, plus foreclosure charges, called reinstatement; or the entire amount due on the note and trust deed, plus foreclosure charges, called redemption. The owner or junior lienholder has approximately 105 days after recording the NOD to cure the default and reinstate the note and trust deed. Doing so avoids a full payoff or foreclosure sale of the property. On reinstatement of the note and trust deed, the NOD is rescinded by the trustee, removing the recorded default from the title of the property. The owner continues their ownership of the property as though the trust deed had never been in default. A property owner's ability to reinstate a trust deed by curing a default depends on the trust deed provision in default. Failure to cure a default before the reinstatement period expires allows a trust deed holder to require the owner to redeem the property and avoid the trustee's sale by: • paying all sums due under the note and trust deed; and reimbursing the costs of foreclosure prior to completion of the trustee's sale. The owner's right of redemption exists until the trustee completes the bidding and announces the property has been sold. Other activities are considered a default on the trust deed, such as the owner's failure to maintain the property, called waste, or failure to pay: property taxes; hazard insurance premiums; assessments; or amounts due on senior trust deed liens. A trust deed holder may advance funds to cure a default on the trust deed and then add the advance to the debt owed. The trust deed holder may then demand the immediate repayment of the advance from the owner.