Texas Commercial Law Firm

4. Recording Reinstatement Agreements. It is essential that any agreement reinstating a matured loan be in writing and recorded. This is because if the lender were merely to agree to not foreclose and continue to receive payments without obtaining a written reinstatement agreement, the lender would be prohibited by the statute of frauds from asserting that it entered into a reinstatement agreement with the borrower. Without an agreement extending maturity to rely on, the lender would run the risk of being barred by limitations from collecting the remaining obligation four years after the date of acceleration. This would be the case even if the borrower fails to timely make all required monthly payments after reinstatement. Texas addresses this situation by statute, Tex. Civ. Prac. and Rem. Code §§16.036 and 16.037 (Vernon 1986) and provides for the extension of the limitations period upon the execution and recording of a written agreement in the records of the county clerk where the property is located. Similarly, four years after acceleration, a third party lender (who is aware of the acceleration but without knowledge of reinstatement) may conclude the loan is no longer enforceable if there is no evidence in the public records of reinstatement. Being entitled to rely on the public records, such a third party lender may be successful in asserting that its lien is superior to the lien securing the accelerated loan. Tex. Civ. Prac. and Rem. Code §16.037. To avoid these risks, a reinstating borrower should be required by the lender to execute a reinstatement agreement as a condition to reinstatement. The reinstatement agreement should then be recorded in the appropriate real property records.

In instances where the borrower is unavailable or uncooperative and it is impossible to obtain their signatures on a reinstatement agreement (and if the lender does not want to re-institute foreclosure proceedings based upon the borrower's failure to execute a reinstatement agreement), a unilateral reinstatement executed by the lender should be used to provide notice to third parties of the reinstatement. A unilateral reinstatement is not the preferred option, however, because it does not preclude the borrower from arguing he never intended to reinstate. It does, nevertheless, offer reasonable protection from claims by third party lenders who may otherwise argue they loaned to the borrower in reliance on the lack of evidence in the public records that the accelerated loan was reinstated.

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