If your mortgage lender is refusing to take your mortgage payments, something is going on that needs immediate attention.
The worst thing you can do in this situation is to delay in figuring out what is going on and what you need to do.
The most common reason why your lender is refusing payment:
- You are in default (meaning – you’ve missed mortgage payments)
- The payment you submitted was a “partial payment”
What is a partial payment?
If you’ve fallen behind on mortgage payments, it is very common to want to try and repay the lender as soon as possible.
Once the income has recovered, many people resume sending in their mortgage payments (and a little bit extra each month) to show the lender that:
- You’re a good person and you’re doing your best to get caught up
- You’re trying your hardest to pay what’s owed
- You believe that you will eventually be able to get caught up
Unfortunately, banks are just creditors who want their money in full and they don’t really care how hard you’re trying.
After you miss a full month’s mortgage payment, legally – your mortgage servicer can demand payment in full of ALL missed payments and ALL late fees.
If you can’t pay this total in full, anything you send them will be considered a partial payment.
While some mortgage lenders choose to accept partial payments – most do not. This is likely why your payments are being rejected.
Partial payments do not solve the problem of you being in default. They do not encourage the lender to “back off” of pursuing foreclosure activity against you.
Even if the mortgage lender accepts a partial payment from you, they can still move you into foreclosure unless you’ve paid them back in full or gotten approved for a workout option (like a loan modification or a repayment plan, more info below).
It is also possible that, even though you think you’re paying the bank back all your missed payments, the amount you’re trying to send is actually short
If you’re several months behind on your mortgage, the mortgage lender is allowed to add late fees (and sometimes foreclosure fees) to the total amount owed.
So, even if you do the math in your head and send them the total amount of missed mortgage payments you believe you owe, this number may still be short because the bank has added fees.
If you can’t pay back the FULL amount owed, you may be a good candidate for a loan modification or a repayment plan
If you’re in a position where you can fully afford to resume your regular mortgage payment but you can’t pay back everything you owe at once, this is why the bank is refusing your payment.
If this describes your situation, you are likely a great candidate for loss mitigation.
Loss mitigation is a structured process where mortgage servicers review you to see if you qualify for a loan modification or repayment plan to allow you to resume payments and get out of default without having to pay all of your arrears at one time.
While you can’t just start repaying your bank on your own in your own manner, you can apply for a loan modification or repayment plan as a way to resolve the issue.
If you get approved for a loan modification (or repayment plan), the bank will fully apply the new agreement to the account and you will be out of default.
If you can repay the full amount owed at one time, you need to go through the reinstatement process – don’t just send them what you think you owe
Simply adding up what you’ve missed and trying to send the bank the total owed may cause the lender to refuse your payments because you won’t be able to account for any fees added.
If you’re behind more than 1-2 months behind, you should always be requesting a reinstatement quote before you send the bank their funds.
Here is more information about the reinstatement process and how to request a reinstatement quote.
The other reason the bank may be refusing your payment is due to a service release
A service release occurs when your loan has been sold to a new mortgage servicer. The new mortgage servicer takes over the day to day management of your loan, issues your mortgage statements and communicates with you about your mortgage.
This is called a “service release” and is something that happens frequently in the mortgage industry.
Why is my payment being refused following a service release?
If your loan gets service released, you should receive a letter from your current lender which tells you the “board date” or the date that your loan is set to transfer to a new servicer.
You are supposed to receive this letter 30-days before the service release is set to take place but some mortgage lenders do a bad job of sending these letters in a proactive manner. Or, they don’t follow-up to confirm whether you’ve received the letter.
Sometimes, you may not know that your loan has been service released until your payment gets rejected.
If you are not behind on your mortgage and your mortgage payment gets refused by the lender, it’s likely a service release issue.
Call your mortgage lender immediately and ask them if a service release has taken place.
Your old servicer will be able to tell you the name, number and date your loan was released to the new lender.
You should contact the new lender and make your payment to them as soon as possible.
If many months have passed before you figure out that a service release took place, you may need to go through loss mitigation in order to resolve the issue even if you weren’t in default in the first place. If something like this is happening to you, I would recommend consulting with an attorney as soon as possible.
If you are a Washington state homeowner and your mortgage lender is refusing payments from you, feel free to give me a call at (425) 654-1674.