What does "Right to Cure" Mean?

The right to cure typically refers to the right of a person who takes out a loan to make all his or her delinquent payments prior to the full default of the loan. Usually, a lender will send the delinquent borrower a right to cure letter that describes his or her right, including the time frame in which he or she may make all back payments. If the borrower fails to make the payments according to the terms described in the letter, then the lender may repossess the item for which the loan was taken, or institute a foreclosure action if the loan was for a home. After the sale, the delinquent borrower will still owe whatever amount was not covered by the sale of the item, and the lender may bring a deficiency action against the borrower to recover the remaining debt.

A delinquent borrower will often receive a letter from a lender explaining the right to cure by making all the appropriate payments he or she failed to make within a specified time period. The law of the jurisdiction generally dictates this time period, but it may stem from a clause within the loan agreement. There are typically extra protections for those who took out a home loan, and very often the delinquent borrower may cure his or her deficiency even after the property has been foreclosed upon — called the right of redemption. This may or may not be stated within the right to cure letter depending on the laws of the jurisdiction.

After the period in which the borrower has the right to cure, the lender may repossess the item for which the loan was taken or institute foreclosure proceedings. If it is an item that has been purchased with the loan, the company has the right to take and sell the item. Typically, this is done through a public auction, but it may be done through a private sale. In either circumstance, the delinquent borrower has a right to know how and when the item will be disposed.

Once the sale is closed, the lender will apply the proceeds to the existing debt. In the event that the amount received from the sale does not completely cover the delinquent debt, called a “deficiency,” the lender may bring a deficiency action against the borrower. However, if the proceeds from the sale of the item cover the debt, the lender is to return any extra money to the borrower and he or she is cleared of the debt.