loan reinstatement question

[Johnathan Norman]

I have a note and the borrower is owed 2 years back taxes and is 5+ months behind on payments.  Just had them transferred to my servicer (Madison Management) and I paid the taxes to get things current.  The servicer has the info and added the information to the system. 

Last month the borrower made a small payment and the servicer applied that amount to the loan principle minus some interest.   I was under the impression the borrower had to pay off the amount owed for the taxes I paid first, before being able to make loan payments. Is that not the case? bit surprised here.