Understanding Mortgage Arrearages

[womanonfire]

I'm having a very hard time understanding paying back mortgage arrearages and what is included. Hopefully someone can help.

Short back story: I sued former mortgage servicer who filed bankruptcy. Right before they filed, I had found they they had misapplied many payments throwing off the total credit paid over the loan and that they had double dipped into my escrow accounts for insurance payments not due. They would not correct the account so I stopped paying. As far as I was concerned, their breach of contract excused my non performance. Also in Georgia, there is a voluntary payment rule that if you continue to make payments on an account that is in error, you can lose your rights. These legal theories of mine were never litigated due to some dirty lawyers. So the next servicer foreclosed but not before adding a lot of fees to the account that would have been avoided had they corrected the accounting. So I filed Chapter 13.

In my amended plan, I was to propose to payback only the missed payments and no fees. But I'm can't wrap my head around why I should have to pay missed principal payments that would have reduced the loan balance by those amounts. The principle amount of my loan was $110, 355.13 when I stopped paying although that is also in dispute. Since I have an accurate amortization schedule that matches the payment history, the missed P&I payments are below:

Interest Principal

452.61	381.18
451.02	382.77
449.42	384.37
447.82	385.97
446.21	387.58
444.60	389.19
442.98	390.81
441.35	392.44
439.71	394.08
438.07	395.72
436.42	397.37
434.77	399.02
433.10	400.69
431.43	402.36
429.76	404.03
428.07	405.72
426.38	407.41
424.69	409.10
422.98	410.81
421.27	412.52
419.55	414.24
417.83	415.96
416.09	417.70
414.35	419.44
412.60	421.19
410.85	422.94
409.09	424.70
407.32	426.47
405.54	428.25
403.76	430.03
401.96	431.83
400.17	433.62
398.36	435.43
396.54	437.25
394.72	439.07
392.89	440.90
391.06	442.73

When paying back the arrearages of principle and interest, should those payments be applied to the as they would have been applied had I made these payments following the same amortization schedule? Because if those payments are applied correctly, and the current payments are applied correctly, my new principle balance coming out of this should be $62,606.00 at which point I will have zero debt and can either refinance into a lower interest rate (mine is at 5%).

Is anyone aware of some good plan wording that speaks to the correct application of these payments so that the servicer doesn't screw it up?

If I'm missing anything else, please let me know. Thanks!

[justbroke]

You would need to litigate to fix any issue. Remember, the mortgager/servicer is going to file a claim. In that claim they'll list the principal owed, your monthly payment (which would include any escrow costs), and the arrears. The arrears are called out separately and they must be paid in a Chapter 13 in order to get a discharge.

So, unless you file an adversary proceeding (AP) or you object to their claim, then the claim must be paid to a.) obtain a discharge, and b.) avoid a motion for relief from stay and foreclosure.

Unfortunately going into an AP in a Chapter 13 will require you to pay out-of-pocket $$$ to your bankruptcy attorney. You may then need to hire a forensic accountant. In the end, how suspense accounts work and how things are applied in mortgage accounting systems are complex. I can't even speak to how they actually work but I understand that most people get in trouble once payments go into suspense.

The suspense causes other things to become past-due which triggers other things. For example, normal mortgage payment is $1,000 a month, but debtor pays $500. The $500 is put in suspense. This causes a late fee. Then the debtor pay $1,000 the next month (may have forgotten the other $500). Well, that $1,000 goes into suspense because $1,500 was due. That causes a snowball affect. Then additional fees come into play when the lender then starts sending a "drive-by" inspection monthly which cost more $$ a month. That also gets piled into the equation and raises the principal due.

Here is how arrears work in a Chapter 13:

• arrears are listed separate from the balance (e.g. $36,000 in arrears owed on $110,000 balance)
• the Chapter 13 resets the mortgage to "current"
• so long as the arrears are paid ($36,000), the mortgage continues to be "current"
• if the Chapter 13 fails, those arrears and all contractually-imposed fees come back in full force

What a Chapter 13 does, is allows the debtor to pay the arrears, and reap the benefit of immediately being current while those arrears are paid. The bottom line is, whether it's worth fighting or just paying the arrears in the bankruptcy to get the mortgage current. (In other words, stop the bleeding.)