Mortgage servicers misapply payments constantly—putting them in suspense, applying to wrong accounts, or losing them entirely. These errors create phantom defaults and can trigger wrongful foreclosure. You have the right to demand correction.
You send your payment on time. But instead of crediting your account correctly, the servicer:
Holds payment in limbo rather than applying to your loan, often claiming it was "short"
Posts payment to different loan number, escrow, or another borrower entirely
Backdates receipt to make it "late" and trigger late fees or default status
Check cashed but never credited, or electronic payment disappears from system
If your payment is $1 short, servicers often put the ENTIRE payment in suspense rather than applying it. This makes you appear delinquent on the full amount, triggering late fees and collection calls—all over $1.
Federal law under 12 CFR 1024.39 requires servicers to credit payments promptly:
If you send less than a full payment:
RESPA requires payments be applied in order: interest due, then principal, then escrow, then fees. Servicers cannot apply payments to fees first to make it appear your principal payment was short.
Bank statements showing payment clearing, cancelled checks (front and back), wire transfer confirmations, online payment receipts. The goal: prove you sent it and they received it.
Submit a written Notice of Error under 12 CFR 1024.35. Must include loan number, describe the error, and request correction. Send certified mail with return receipt.
Simultaneously send a Request for Information (RFI) under 12 CFR 1024.36 asking for complete payment history, suspense account records, and fee itemization.
Servicer must acknowledge within 5 business days and complete investigation within 30 business days (extendable to 45). Mark calendar and follow up if missed.
Common causes of "short" payments:
Request a detailed payment breakdown showing exactly how they calculated the "shortage." Often they've added fees you didn't owe or made a data entry error.
This is a key defense. If you made payments and they held them in suspense rather than applying them:
Request complete suspense account records immediately. If suspense funds equal or exceed the claimed default, they've essentially been holding your money while claiming you didn't pay.
Under the Fair Credit Reporting Act (FCRA):
If they reported inaccurate information, you may have FCRA claims for actual damages (including credit score impact), statutory damages, and attorney fees.
Yes—continue making regular payments while your dispute is pending:
If you stop paying during the dispute, you could create a real default that undermines your position. Make your regular payments and fight to get credit for past payments simultaneously.
I help California homeowners fight payment misapplication, suspense account games, and phantom defaults. If you're facing foreclosure over payments you actually made, I can help.