Mortgage Loan Suspense Accounts

If you have had trouble making your payments or have made sporadic or partial payments, then you may have heard the term “suspense account.”  Most people are unaware of suspense accounts  and how they might relate to a mortgage.  As the name would suggest, a suspense account is an account set up by a mortgage company to hold a borrower’s funds in “suspense”.  This means that any money placed in a suspense account is not being applied to the principal and interest due on the loan.  

Suspense accounts are used primarily when partial or incomplete payments are made by the borrower.  For instance, if a borrower splits his/her mortgage payments up and pays them in two payments per month rather than once a month, a lender might place the first payment in a suspense account until the second payment is received.  In a non-default situation, a mortgage company might use a suspense account because it is simpler than programming their computer system to accept such payments.  But in the case of partial payments after a borrower is behind on their loan, a lender might have ulterior motives in placing any payments into a suspense account.  There have been judges that have held that if a lender continuously accepts partial and late payments on a loan, that it may waive its right to cease accepting such partial and late payments and foreclose on the property.  If a borrower is behind on his payments and attempts to make a payment that does not bring the loan current, some lenders will simply return the check uncashed.  Other lenders will place the money in a suspense account so that they can argue that they have not “accepted” the payment and waived their right to foreclosure.

There are several other problems that can be created by the use of a suspense account.  It is probable that if funds are being held in a suspense account rather than being applied to the balance of the loan, it creates a situation where more interest is accruing on the loan than should really be due.  In other words, the borrower is being charged more interest than he should have to pay.  Also, lenders may use funds being held in suspense to pay for unauthorized fees or other charges that it should not be entitled to collect.

Whether a lender is authorized to create a suspense account is dependent on the security instrument between the borrower and lender.  Several of the mass produced deeds of trust and similar security instruments do allow for the creation of a suspense account.  If the security instrument does not allow for the creation of a suspense account and a lender is using one to improperly hold the borrower’s funds, this could be a valid reason to stop a foreclosure.  Additionally, some states may not allow for the creation of a suspense account.  If you feel your lender is improperly using a suspense account to your detriment, you should contact an attorney in your area as soon as possible.

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