Repayment Plans

This is a similar option to reinstatement of the note in that it allows you to get caught up on your payments without entering into any new or modified agreement.  A repayment plan is simply an agreement that the bank will accept the arrears on the note over a (usually short) period of time.  This is accomplished by agreeing to make your normal monthly payment, plus an extra amount to cover the arrearage. 

For example, suppose you are behind on your mortgage payments of $1,000 by three months, for a total of $3,000.  If the lender agrees to accept a payment and a half ($1,500) a month for the next six months, you would be current on your note at the end of the six month period ($1,500 * 6 = $9,000 [$6,000 normal payments + $3,000 arrearage]).  This example is clearly simplified because it does not include the late charges and penalties that the lender is almost sure to charge.

Repayment plans are generally only a truly viable foreclosure alternative in the early stages of a default on your mortgage payments.  This is generally true for a couple of reasons.  The first reason is that the further you get behind on your payments, the more unlikely it becomes that you will be able to “double-up” on your payments and still get caught up in a reasonable amount of time.  Secondly, the further you get behind the more likely you are to be placed in a “default” or “foreclosure” status by the lender.  If you get placed in this type of status, it is possible that the lender will not accept any payments (full or partial) and will only be willing to accept the full reinstatement amount.   If this occurs, the lender will usually either return the payment to you or place the payment in a suspense account and not apply it to the loan. 

A repayment plan could be a formal agreement entered into between the debtor and the lender.  It is also possible that you could “force” the lender into such an arrangement simply by sending in the extra payments.  As long as the mortgage company continues to accept the payments, it is required to apply the payment to the balance.  One caveat to this though is that most security instruments provide that the lender can apply payments first to late fees and penalties, prior to past due or current payments.  So if you try such a repayment plan, make sure you are sending enough to cover any of these fees and to also lower the amount still due and owing.

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