Civil Code Section 2924c(a)(1), creates a statutory right to reinstate defaulted real property loans. After reinstatement, the loan is de-accelerated. In other words, after the note is de-accelerated, the borrower needs only to make the monthly payments.
Under Civil Code Section 2924c(a)(1), the following parties have the right to reinstate a defaulted loan:
- The borrower, called the “trustor” (under a deed of trust) or the mortgagor (under a mortgage), or any successor in interest to the borrower;
- Either the lender or the borrower, under any junior deed of trust, mortgage or other lien against the property.
In other words, any one who has a financial interest in the property, which might be wiped out by a foreclosure, has the right to reinstate. This includes the owner of the property, the borrower under the loan or anyone with an interest in a junior deed of trust, mortgage or other lien in the property.
The right to reinstate the loan continues until five business days before the noticed date of the foreclosure sale. “Business days” means weekdays, other than holidays. It does not include Saturdays, Sundays or bank holidays. After this deadline passes, the lender does not have to accept reinstatement. During this time, the lender can go ahead with the foreclosure unless the entire amount of the loan (not just the amount in default) is tendered.
If the foreclosure does not occur on the first noticed sale date, and if a new sale date is noticed, then a new right of reinstatement comes into existence, which also continues until five days before the new noticed sale date.
In order to reinstate the loan, the lender may demand payment of the following:
(1) All of the amounts, which are set out in the Notice of Default, which may include all amounts in default of principal, interest, taxes, assessments, insurance premiums or advances made by the lender to pay senior liens and other amounts needed to protect its lien.
(2) All “recurring obligations” which means all monthly payments under the loan, which come due after the Notice of Default, plus all amounts due under senior liens, all taxes and insurance payments advanced by the lender after the Notice of Default. Note, however, that foreclosing lender cannot demand payment of amounts advanced for monthly payments on senior liens, if the Notice of Default did not mention such first mortgage. Little v. Harbor Pacific Mortgage Investors (1985) 221 Cal. Rptr. 59; 175 Cal. App. 3d 717.
(3) All “reasonable costs and expenses actually incurred” by the lender in enforcing the mortgage or deed of trust. These “reasonable costs” are limited to: “the costs incurred for recording, mailing, including certified and express mail charges, publishing, and posting notices required by Sections 2924 to 2924i, inclusive, postponement pursuant to Section 2924g not to exceed fifty dollars ($50) per postponement and a fee for a trustee’s sale guarantee.” Civil Code Section 2924c)(c). The lender is also permitted to charge trustee fees or attorney fees, but these are limited by Civil Code Section 2924c(d).
The lender may NOT demand that principal be paid, which would not have been due had the default not occurred. In other words, the amount needed to reinstate must be calculated only the defaulted amounts, plus costs. It may not include the full, accelerated amount of the loan.
Under Civil Code Section 2943, lenders are required to provide information on how much is needed to reinstate loans. The borrower under the loan, his or her successor in interest, anyone with a financial interest in a junior lien against the property and escrow agents are all authorized by the statute to request, in writing, information from the lender
Two types of information may be requested: a beneficiary statement, which states how much must be paid to reinstate a defaulted loan; and a payoff demand statement, which states how much is needed to pay the loan in full. (The payoff demand statement is requested, when the property is being sold, the loan is being refinanced or the loan is otherwise going to be paid in full.)
The lender is required by law to respond to such a request within twenty-one (21) days of receiving it. Please note, however, that such a demand for information can only be made for two months after the Notice of Default is recorded. If the Notice of Sale has been recorded, then the lender need not respond to the request for information.
If a loan is reinstated, the lender must, within twenty-one (21) days of the reinstatement issue a Notice of Recission of the declaration of default. Civil Code Section 2924c(a)(2). The trustee under the Deed of Trust must record the Notice of Recission, within thirty (30) days of receiving it.