If a defaulted mortgagor is seeking reinstatement to cure the defaults caused by short-term cash flow issues, what considerations is the lender faced with?
Beyond risk of further default, lenders should take proper steps to ensure they have preserved their rights under the present default. Typically this means a reinstatement letter or agreement that sets forth the event of default, stipulations that reinstatement is not to be considered a waiver of the lien holder’s rights under the promissory note or security agreement, and stipulations that preserve the right to foreclosure (or other default remedies) if the monies due are not paid in full by a specific date and time. Reinstatement, forbearance and repayment plans are popular methods for allowing mortgagors to cure minor defaults on otherwise profitable loans caused by short –term cash flow inconveniences.
