Texas Commercial Law Firm

G. Does Your Borrower Have the Right to Cure and Reinstate?

Texas law provides that, notwithstanding any waiver of right to cure, a borrower in default of a loan secured by his residence must be provided with 20 days notice to cure the default before the debt may be accelerated and notice of sale given. Tex. Prop. Code §51.002 (d). There is no similar statutory right to cure for liens against property other than the debtor's residence. Regardless of Texas law, however, any right to cure or reinstate granted in the deed of trust must be given or the acceleration of the debt and, consequently, the foreclosure will be void. It is imperative, therefore, to review the deed of trust in evaluating whether to provide a opportunity to cure, and if so, how much time to cure must be given.

1. When should you allow a borrower to reinstate? While there is no express right to reinstate an accelerated loan under Texas law, many residential deed of trust forms provide the borrower with such a right. For example, the standard FNMA uniform instrument form deed of trust contains the following language:

If Borrower meets certain conditions, Borrower shall have the right to have enforcement of this Security Instrument discontinued at any time prior to the earlier of: (a) 5 days (or such other period as applicable law may specify for reinstatement) before sale of the Property pursuant to any power of sale contained in this Security Instrument; or (b) entry of a judgment enforcing this Security Instrument. Those conditions are that Borrower: (a) pays Lender all sums which then would be due under this Security Instrument and the Note as if not acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys' fees; and (d) takes such action as Lender may reasonably require to assure that the lien of this Security Instrument, Lender's rights in the Property and Borrower's obligation to pay the sums secured by this Security Instrument shall continue unchanged. Upon reinstatement by Borrower, this Security Instrument and obligations secured hereby shall remain fully effective as if no acceleration had occurred. However, this right to reinstate shall not apply in the case of acceleration under paragraph 17 [relating to sale of property without the lender's knowledge].

Clearly, when foreclosing a lien secured by a deed of trust with this or similar language, the lender must follow the deed of trust requirements concerning reinstatement. Absent such a provision in the deed of trust, a lender is not required to reinstate under Texas law. Any decision to reinstate when not required by the deed of trust is solely the lender's business decision. In the event a reinstatement agreement is reached, however, it is imperative that the lender obtain a signed reinstatement agreement from the borrower and that it be recorded in the appropriate real property records, as discussed below.

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