May a buyer who acquires property subject to an existing mortgage which is in default reinstate the mortgage to cure the default when the lender has not called the mortgage due, refuses to accept reinstatement and starts foreclosure?
Shetty v. HSBC Bank USA, N.A.
Facts: A buyer purchases a parcel of real estate, taking title subject to an existing mortgage in default. The buyer attempts to bring current the delinquent monthly payments and reinstate the mortgage. The mortgage holder refuses to provide any information about the status of the mortgage to the buyer, does not call the mortgage due to demand a single final payment, and starts a trustee’s foreclosure sale based on the delinquencies in monthly payments. The buyer seeks to recover money losses for the mortgage holder’s refusal to permit reinstatement.
Claim: The buyer claims they were entitled to reinstate the mortgage since as the new owner of the encumbered property they were the successor to the original borrower on the mortgage.
Counterclaim: The mortgage holder claims the owner has no right to reinstate the mortgage since they were not the person who originated the mortgage and the trust deed provisions did not allow subsequent owners to reinstate the mortgage.
Holding: A California appeals court holds the buyer was entitled to reinstate payments on the mortgage and cure the default since they were the successor to the original borrower who was the trustor on the trust deed securing the mortgage and not a stranger to the mortgage. [Shetty v. HSBC Bank USA, N.A. (2023) 91 CA5th 796]
Editor’s note – While the case opinion does not say so, the lender apparently did not call the mortgage due which would alter the payment schedule and establish one remaining payment in the amount of all sums due on the mortgage.
Either the trust deed did not contain a “due on” clause, or it did and the mortgage servicer failed to know they had to call the mortgage due, then foreclose only on the failure of the buyer to redeem. Had the servicer called the mortgage due, only one payment would remain on the trust deed note. Thus, reinstatement of monthly payments would not be relevant, but redemption would be as the buyer is then only able to redeem the property by payment in full of all amounts due under the note and trust deed.
Related Reading:
The Due-On Clause Strikes Back
California Mortgage Lending: Chapter 39: Reinstatement and redemption periods during foreclosure
Real Estate Finance: Chapter 4: Basic provisions in trust deed notes
Related FARM letter:
Client Q&A: Is a trust deed the same as a mortgage?
Related Videos:
The Stages of Foreclosure, Reinstatement and Redemption
