What's a Mortgage Suspense Account?

When you make a full monthly mortgage payment to your loan servicer, it uses part of the payment to reduce the principal balance and some to pay interest. If your loan is escrowed for taxes and insurance, part of the payment goes into an escrow account.

If you underpay or overpay, those funds will most likely go into a suspense account, a catch-all account used to hold funds temporarily. As the name suggests, a "suspense account" is an account that the servicer sets up to keep a borrower's funds suspended until it decides how to allocate them.

What Happens to Partial Mortgage Payments

The most common use for a suspense account is for partial payments. If you pay only part of what you owe for a particular installment, the suspense account will probably hold your payment in suspense until a full payment is available.

For example, let's say you split your mortgage payments up and pay two payments per month rather than once a month. The servicer might 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 will remove the funds from suspense and apply them to the account.

Here's another example: You pay $1,000 on your $2,000 monthly mortgage payment for June. The servicer puts this amount in a suspense account. The next month (July), you pay $2,000. The servicer then takes $1,000 from the July payment, adds it to the $1,000 in suspense, and applies that $2,000 to the June payment, leaving $1,000 of the money you sent for July. Because $1,000 isn't enough to cover the July payment, the servicer puts it into suspense, and the cycle continues. If you continue to pay just $2,000 each subsequent month, you won't get current on the loan. Your servicer could then charge you late fees, report the delinquency to the credit reporting bureaus, and eventually start a foreclosure.

What Happens to Overpayments

Your mortgage lender may also 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 might put those funds in a suspense account. Or the amount might go toward reducing the principal balance of your mortgage.

Disputed Amounts and Suspense Accounts

If you dispute any of the amounts your servicer claims you owe, don't reduce your payment amount to remove the disputed amount. The servicer might consider your payment a partial one and place it in suspense until it receives the full one.

Again, if you do this and don't get current on the loan, the servicer could potentially charge you late fees, report the delinquency to the credit reporting bureaus, and eventually start a foreclosure.

CFPB Rule Regulates Suspense Accounts

The Consumer Financial Protection Bureau (CFPB) issued mortgage servicing rules that went into effect on January 10, 2014. These rules generally require that loan servicers promptly credit a consumer's account on the day a full payment is received, subject to a few exceptions.

The rules also state that if a servicer receives a partial payment from the borrower, the payment may be held in a suspense account. But the servicer must inform the borrower about it on the monthly statement. Also, when the amount in the suspense account is sufficient to cover a full payment, the servicer must credit the borrower's account. (12 C.F.R. § 1026.36(c)).

Servicer Mistakes and Suspense Accounts

Sometimes, the servicer makes a mistake and places payments into a suspense account without proper justification. For example, say you send in your October payment of $1,100 to your servicer, but the servicer incorrectly records the payment as $100. Because this payment 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 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 because this amount 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 your loan servicer made a mistake by placing funds into suspense, contact the servicer. If a phone call doesn't resolve the matter, you can send your servicer a notice of error or request for information.

If your servicer isn't helpful, talk to a lawyer to learn about your legal options.