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Article of the Month for December 2002 Printer friendly version

Figuring Out The Reinstatement Amount
and Principal Balance of a Senior Lien

Sample Problem:
Let's say you're interested in going to a foreclosure auction of a 2nd trust deed and need to figure out what it's going to cost to reinstate the delinquency on the 1st trust deed and what the current balance is on the 1st.

Let's say that for free, you got a copy of two recorded documents faxed to you from the Customer Service Department of your local title company. One of the documents is a copy of the first trust deed that shows it was recorded on March 1, 1985 in the original amount of $135,750 dollars. The other document is the Notice of Default (NOD) pertaining to the current foreclosure of the 2nd trust deed.

We always assume, when lacking any evidence to the contrary, that a property owner in default stops making payments towards any of their property obligations, all at the same time. Therefore, even though the 1st trust deed holder has not yet started their own foreclosure, we just get a copy of the NOD recorded by the 2nd and impute the date of delinquency found therein, February 1, 2002, to that of the 1st trust deed.

Finally, compute the above problem as if today was December 01, 2002.

Solution:
You can estimate the reinstatement amount fairly easy. The only equipment you need is an amortizing or financial calculator such as the Hewlett Packard 12-C (HP 12-C).

Use the following steps to determine-the 1st's probable interest rate and monthly payment and the present unpaid balance once the reinstatement payment has been made.

#1. CLEAR - With the HP 12-C in hand, clear the machine by pressing the "f" key and then the "CLX" key.

#2. The "n" register - A 1st is usually set up for 30 years. So press "3" and then "0" and then the "g" key and then press the "n" key.

#3. The "i" register - Look on the 1st trust deed and find the date it recorded. Then go to our 60+ Yrs Interest Rates page and find what the interest rate was on that date. Then enter that interest rate into the machine and press the "g" key and then press the "i" register.

#4. The "PV" register -Find the original loan amount on the 1st trust deed and put it into the PV register.

#5. Press the PMT key and the machine will calculate the payment amount.

#6. Look on the 1st trust deed and find the date it recorded. Figure out the number of months from then to now and put that number into the "n" register. Then depress the FV key and it will compute the unpaid balance.

Now we have all the basic factors to finally figure out the approximate reinstatement amount for the delinquent 1st:

#7. Press the recall key "RCL" and then press the PMT key. Change the minus sign to positive by pressing the "CHS" key.

#8. Now figure out the number of months from the date of delinquency that appears near the end of the NOD and enter into the calculator and press the "X" key. Next enter 106 and press the "%" key. That will take care of the 6% late charge penalty charged by lenders in CA.

Now enter $500 to reimburse the 1st if an NOD was filed and press the "+" key. Finally, if a bankruptcy was filed then enter another $500 estimate that the 1st's attorney probably charged to make an appearance in bankruptcy court and press the "+" key. (For purposes of this problem assume a bankruptcy was filed.)

The total displayed on the machine is approximately the reinstatement amount.

Answers:
Total amount of the reinstatement due on the delinquent 1st trust deed $___________.

The principal, unpaid balance owing on the 1st trust deed is $__________________.

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