When Borrowers Challenge the Payment History: Building a Defensible Servicing Record in the Carolinas

Mortgage payment histories can become complicated well before foreclosure begins. Payments may be transferred between servicers, held in suspense, applied to escrow shortages, reversed, or accompanied by account adjustments. If a borrower later disputes how much they owe, a basic transaction ledger may not be enough to explain the current balance.

This can cause expensive and time-consuming delays in foreclosure. Reviewing the servicing record prior to foreclosure can help you uncover discrepancies before they become an issue. Call Crawford & von Keller to find out how we can help you evaluate account records and prepare for foreclosure. You can reach our South Carolina office at 803-790-2626 or our North Carolina office at 910-363-1637.

What Borrowers May Challenge in a Mortgage Payment History

A borrower doesn’t have to dispute the entire debt to raise questions about the servicing history. Disputes may involve:

• Payments the borrower claims were made but not credited
• Payments allegedly applied to the wrong month
• Allocation of funds among principal, interest, and escrow
• Suspense or unapplied funds
• Late charges and other fees
• Escrow advances or adjustments
• Payment information transferred from a prior servicer

Certain allegations may also implicate federal mortgage servicing rules. Regulation X, as an example, identifies failures involving the acceptance, application, or timely crediting of certain payments as potential servicing errors.

A Defensible Servicing Record Should Explain How the Balance Was Calculated

When preparing a loan for foreclosure, creditors should be able to reconstruct the account, not just rely on the current balance displayed on the servicing system.

Depending on the dispute, the review may include the note and payment terms, complete transaction histories, escrow records, suspense account activity, fee assessments, and records received from previous servicers.

Unusual adjustments should have explanations supported by the underlying records. Funds moved out of suspense, reversed payments, or fees that were later removed should be explained.

This is particularly important when figures in the payment history have to support the foreclosure. For example, in North Carolina, the clerk must find the existence of a valid debt and a default before authorizing a power-of-sale foreclosure. In South Carolina foreclosure actions, the judge or master calculates the amount due, including principal, interest, escrow credits, costs, and other amounts.

Address Payment Discrepancies Before They Become Foreclosure Disputes

Pre-foreclosure review is an opportunity to identify duplicate transactions, unexplained reversals, missing transfer records, or differences between the servicing ledger and the amount claimed due.

Servicers should also confirm whether the borrower has submitted a qualifying notice of error. Per Regulation X, a covered servicer must investigate qualifying notices of errors and either correct the errors or provide a written explanation of its decision that no error occurred.

Finding an inconsistency doesn’t necessarily mean that the debt is unenforceable. It does mean that the creditor should understand and correct or document the issue before relying on the disputed figures in foreclosure.

Make Sure the Servicing History Can Be Explained

A useful servicing file isn’t just a collection of account records. It should allow counsel and, when necessary, a witness to explain how payments were received and applied, why adjustments happened, and how the amount due was calculated. This often involves reconciling prior servicer records, preserving documentation that supports account adjustments, and confirming that the figures used in foreclosure documents remain consistent.

Crawford & von Keller Helps Creditors Prepare Defensible Foreclosure Files

Payment history disputes are much easier to address when problems are identified before foreclosure litigation ramps up. Crawford & von Keller works with lenders, servicers, investors, and other creditors throughout the Carolinas to review files, address servicing record concerns, and protect creditors’ rights. Contact us today to discuss an upcoming foreclosure and find out how we can help.