Can a Mortgage Company Refuse a Payment?

Mortgage payments are typically due on a specific date each month. Borrowers expect payments to be accepted by their mortgage servicer, the company collecting these payments. However, a mortgage company may refuse to accept a payment, which can have implications for the borrower.

Situations When Payment May Be Refused

Mortgage servicers may refuse payments for various reasons, often related to the payment amount, method, or the current status of the loan. A common situation involves partial payments, where the submitted amount is less than the full amount due, including principal, interest, taxes, and insurance.

Some servicers may hold partial payments in a “suspense account,” but these funds are not applied until the full payment is received. If the full amount is not provided, the partial payment may be returned, and the account remains delinquent.

Payment method issues can also lead to refusal, such as attempts to pay with cash, which is not accepted for mortgage payments. Uncertified funds, like personal checks for large amounts when a loan is in default, may be rejected, with servicers requiring certified funds like cashier’s checks. Payments from unauthorized third parties or checks with incorrect details, such as an expired date or a discrepancy between the written and numerical amount, are refused.

Refusals can also occur if a payment is made after certain legal actions have been initiated against the property. If the mortgage loan has been accelerated, a servicer may refuse a regular monthly payment as the entire balance is due. Payments may be rejected if tendered after a foreclosure sale is scheduled or a judgment of foreclosure is entered by a court. At these advanced stages, the servicer’s objective shifts from collecting monthly payments to recovering the full loan amount through the foreclosure process.

Another reason for refusal involves conditional payments, where a borrower attempts to attach stipulations or restrictive endorsements to their payment. For instance, writing “payment in full for disputed amount” on a check for less than the amount due can lead to rejection. Mortgage servicers avoid accepting payments with conditions that could imply an agreement to a lesser amount or a dispute resolution, as this could compromise their legal standing. Overpayments or duplicate payments may be returned to the borrower to prevent accounting discrepancies.

Consequences of a Refused Payment

When a mortgage payment is refused, the account remains delinquent. This means the mortgage payment is still outstanding, and the loan is considered past due. Continued delinquency can quickly escalate to a state of default, which triggers more serious actions by the servicer.

Late fees and other penalties will accrue on the unpaid balance, often 4% to 5% of the past due payment. These fees add to the total amount owed, increasing the financial burden on the borrower.

The refusal also negatively impacts the borrower’s credit report, as the delinquency will be reported to major credit bureaus. A single missed payment can cause a credit score to drop, affecting future borrowing capacity and interest rates.

The ongoing delinquency and potential for default elevate the risk of foreclosure proceedings against the property. If the issue leading to the refused payment is not swiftly resolved, the mortgage servicer can proceed with legal steps to seize and sell the home to satisfy the debt.

Borrowers will also receive communications from the servicer, including return notices explaining the refusal reason and formal notices of delinquency. These communications serve as official records of the loan’s status and the servicer’s attempts to collect the debt.

Borrower Actions and Rights

Upon learning a mortgage payment has been refused, the borrower should contact their mortgage servicer to understand the reason for the refusal. Obtaining a clear explanation is important for determining the next steps to rectify the situation. It is important to ask for specific details regarding the deficiency, incorrect method, or loan status that led to the rejection.

Once the reason for refusal is understood, the borrower should promptly resubmit a correct payment, addressing the identified issue. This might involve submitting the full amount due, using a certified payment method, or avoiding any conditional endorsements on the payment. Swift action can help minimize additional late fees and mitigate further negative impacts on the loan and credit standing.

Documenting every interaction is important for the borrower. This includes keeping detailed records of all communications with the servicer, such as dates, times, names of representatives, and summaries of discussions. Copies of all payments attempted, whether accepted or refused, along with any return notices or correspondence from the servicer, should also be maintained. This documentation serves as valuable evidence should any disputes arise.

Borrowers also have rights under federal regulations, such as the Real Estate Settlement Procedures Act (RESPA), which allows them to send a Qualified Written Request (QWR). A QWR is a formal letter sent to the servicer requesting information or asserting that an error exists regarding the mortgage account.

Upon receipt of a QWR, the servicer is required to acknowledge it within five business days and respond within 30 to 45 business days, providing the requested information or correcting the error. If a borrower believes the refusal was improper or needs assistance, seeking help from a HUD-approved housing counseling agency or a legal aid organization can provide guidance and support.