In Part 1, we discussed how mortgage companies often engage in “double dipping” when you are in a Chapter 13. Part 2 dealt with how mortgage companies commonly fail to send you a monthly statement while you are in a Chapter 13 bankruptcy. Part 3 addresses the ways in which mortgage companies often misapply monthly mortgage payments.
In many cases, during your Chapter 13 your monthly mortgage payments increase (or decrease) for any number of reasons – because of a variable interest rate, an increase in property taxes, etc. If the mortgage company isn’t sending you a monthly mortgage statement (see Part 2), you may not have been aware of the change. In that situation, the monthly payment you are sending may not be enough to cover any increase. As a result, the mortgage company will not apply the payment to your account. Instead, they will place the payment in a “suspense account” where it will sit until there is enough money to cover the new increased monthly payment.
Because the payment was not applied to that month, they consider you to be behind on your mortgage payments. Now they can charge late fees, attorney fees, and even file a motion to lift the automatic stay in your bankruptcy and foreclose on your home. And, if you are not receiving mortgage statements you do not know that this is occurring and you will remain perpetually behind.
In some cases the mortgage company has no justification for holding monthly payments in a suspense account, although they will do so anyway. For example, you could have made your last six mortgage payments in a timely manner but the mortgage company kept it in the suspense account and did not apply any payments until month six, when it did so in one lump sum. You incur interest on the higher principal balance over those six months because payments were not applied that would have lowered the principal balance.
Even though there is no justification for this practice, the mortgage company may still charge late fees, attorney fees, and may even make a motion in the bankruptcy court to lift the automatic stay.
To avoid these inappropriate actions by the mortgage company, be sure to be diligent in tracking the actions of the mortgage company and all payments and correspondence with them. You should also contact your bankruptcy attorney if you believe your payments have been misapplied.
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Last modified: January 28, 2010