If you overpay or underpay your monthly mortgage payment, those funds will most likely go into a suspense account, which is a catch-all account used to temporarily hold funds. Read on to learn more about mortgage suspense accounts and what happens to funds after they are placed in suspense.
How Mortgage Payments Are Generally Applied
When you make your full monthly mortgage payment to your loan servicer (the company that collects and processes your mortgage payments, as well as manages foreclosures), it will apply part of the payment to pay down your principal and will use part of it to pay interest. If your loan is escrowed for taxes and insurance, part of the payment goes towards that as well. (Learn more about mortgage escrow accounts.)
As the name suggests, a suspense account is an account set up by a mortgage servicer to hold a borrower’s funds in a suspended state until it decides how to allocate them. Suspense accounts are used primarily when the borrower makes a partial or incomplete payment, though it can also be utilized if you overpay as well.
The most common use for a suspense account is for partial payments. If you make a partial payment, the suspense account will hold your payment in suspense until a full payment is available.
For example, if you split your mortgage payments up and pay two payments per month rather than once a month, the servicer would place the first payment in a suspense account until the second payment is received. Once the suspense account has enough funds to make a full payment, the servicer would then remove the funds from suspense and apply them to the account.
Your mortgage lender may use a suspense account for overpayments. For example, if you always round up when you write out your check to pay the mortgage payment, the servicer may apply those funds to a suspense account.
Disputed Amounts and Suspense Accounts
If you dispute any of the amounts that your mortgage servicer claims that you owe, do not reduce your payment amount to remove the disputed amount. If you do this, the mortgage servicer may consider your payment a partial payment and place it in suspense until it receives the full payment. If this happens, your servicer may charge you late fees and may claim you have defaulted on the mortgage, which can lead to foreclosure.
New CFPB Rule Regulates Suspense Accounts
The Consumer Financial Protection Bureau (CFPB), which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has issued new mortgage servicing rules that go into effect as of January 10, 2014. Among other things, the rules generally require that mortgage servicers promptly credit a consumer’s account on the day a payment is received (subject to a few exceptions).
The new rules also state that, if a servicer receives a partial payment from the borrower, the payment may be held in a suspense account. When the amount in the suspense account is sufficient to cover a full payment, the servicer must credit the borrower’s account.
Servicer Mistakes and Suspense Accounts
Sometimes a servicer may place payments into a suspense account without proper justification. (Learn more about common errors that servicers make in Nolo’s article Abuses by the Mortgage Servicing Industry.)
Example. Say you send in your October payment of $1,100 to your servicer, but the mortgage servicer incorrectly records the payment as $100. Since this is not a full payment in the eyes of the servicer, it places this amount in a suspense account and nothing is applied to the loan. The servicer now considers you one month behind in payments. Even if you make November’s payment of $1,100 on time and in full, you’ll still be considered behind. This is because the servicer will take $1,000 from the November payment, add it to the $100 in suspense and apply that to October's payment. That leaves $100 of the money you sent for November, but since this isn’t enough to cover the November payment, it will go into suspense and the cycle will continue.
Call Your Servicer if You Have Questions About Your Suspense Account
If you think the servicer made a mistake by placing funds into suspense or to simply find out if there are any funds in suspense on your account, contact your mortgage servicer.