Foreclosure Part 4: Accelerating the Loan Maturity Date and California's Right of Reinstatement

Accelerating the Loan Maturity Date.  We often borrow money to buy real property because we lack the cash to pay the purchase price up front.  We may also borrow because the cost of funds from borrowing is less than the amount an investor might require.  Whatever one’s purpose in borrowing, that purpose would be defeated if the creditor were given the unfettered right to demand full payment of the loan before the agreed-upon repayment date, commonly known as the maturity date.  On the other hand, if a debtor fails to make one or two monthly payments because of cash flow problems, the creditor has reason to be concerned that the situation may continue for months to come.  After a certain length of time, the creditor may have to treat the loan differently on its books, constraining the creditor’s ability to make other loans and affecting the creditor’s bottom line.  Loan documents give the creditor the right to call the loan, that is, to accelerate the maturity date and demand full payment of the loan immediately under specified circumstances, chief among them, the failure of the debtor to make a payment on time.

California’s Right of Reinstatement.  The history of foreclosure law consists of efforts by debtors to postpone the fateful day when their land is taken from them in satisfaction, whether full or partial, of what they owe their creditors.  A debtor who has fallen on hard times may be able to salvage the situation with just a little more time.  As part of its effort to mitigate the harm of the Great Depression, the California legislature gave debtors a little more time, but only if the reason for the debtor’s plight was want of cash to pay one or more monthly installments.  The creditor may accelerate a loan because the debtor failed to pay an installment, but California law gives the debtor the right to restore the status quo, to reinstate the loan, to decelerate the maturity date, by paying the installment, plus certain fees and costs incurred by the creditor, by a date specified by statute, which is close to the date set for foreclosure.  This right of reinstatement applies only to monetary obligations.  A debtor who violates a non-monetary loan covenant is not given any additional time to cure the monetary default, apart from what is in the loan documents.  See California Civil Code Section 2924c.