Can mortgage payments be made out of sequence?
I sold a home to someone I know. I am carrying the mortgage. There were no agents involved and an attorney drew up the papers. But now she's out of business. The buyer pays me twice per year (two large payments, one every six months). He is seven months behind on one payment (I'll call it payment 'A') but wants to make the next payment (I'll call it payment 'B') without making the previous payment (A). He wants to do that to avoid a late fee on the more recently due payment (B). I told him, "Look, I don't think you can make payments out of sequence like this. You need to pay the outstanding/late payment (A) first." There is nothing in the contract that addresses this situation. What should I do? Am I required to take his recent funds and apply it to the recently due payment (B), or should I insist that the funds go toward the oldest-due payment (A)?
I was about to start foreclosure proceedings, until he sent me this recent money. That's another complexity. If I allow the recently received funds to apply toward the most-recently due payment (B), then what happens with the older payment (A) that was never made? Since the older payment is now seven months late, can I still proceed toward foreclosure, even though he just made a payment? I doubt it. The property is in California, where 90-days-late is required before filing a Notice of Default to begin the foreclosure process. I live in Oregon.
To summarize:
1. Can payments be made out of sequence? (He stated in the recently submitted payment that it was to apply to (B).)
2. How does this affect my ability to proceed with foreclosure?
This is very complicated. Sorry. But what a mess.
No (reasonable) court is going to side with his claim that his payment applies to the current due and that the past due just somehow mysteriously vanished into the air. So if you want him gone, get your attorney involved and start the process. There is established law that payments apply to oldest debt first. Some argument can be made from the buyer's side on late fees if they aren't clear in your state law or the contract, but there's no obfuscating the way any money collected is applied to the legitimate payments.
#3 All Forums Contributor
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@Craig Anderson Raymond
As jd mentioned the answer is no.
You should have used a licensed servicer to handle this as if you foreclose and they get an attorney to fight you good luck as they can argue many things
But to answer the question if someone is behind then no it does not go to current payment
Using monthly payments as easier example
If they are six months behind they would be do November 1, 2023. The payment they make goes toward November and next one December…
Now as the lender you can also say “we are only accepting full reinstatement” which is November through April and if they send money you can send it back or hold in escrow
This is why a servicer and attorney come into play because I have seen people go to foreclose and prior to foreclosure accept one payment and in that state you cannot then foreclose. You have to start over and they just wasted $10k to accept a $1000 payment….
Thanks, guys. That makes sense. Good to know about the legal aspect of payment timing. I will likely have to contact an attorney, but first I will contact another loan servicer that I recently found, to see if they want to take this on. I doubt they will, since it's mostly water under the bridge at this point. I would have used a servicer at the outset but the one I contacted (just after signing the contract) said their computer system was set up for percentage late fees, not set dollar amounts (as mine is - per the attorney), so they couldn't take it.
Let this be a lesson to others. Do it right from the outset. And I think that means it's best to have a servicer draw up the papers that they will handle.
Wow. Sounds like a PITA. Absolutely idiotic to try to skip a payment and apply payment to most recent one. that's not how it works. As soon as they get behind again FORECLOSE ASAP