© HUD Single Family Housing Policy Handbook 4000.1
Included in this section are:
- Acceptance of Partial Payments
- Application of Partial Payments Totaling a Full Monthly Payment
iii. Return of Partial Payments for Mortgage in Default
- Acceptance of Partial Payments
Unless subject to the exceptions in the Return of Partial Payments for Mortgage in Default section, the Mortgagee must accept any Partial Payment and either:
- apply the payment to the Borrower’s account; or
- identify the payment with the Borrower’s account and hold the payment in a suspense account. When a full monthly installment due under the Mortgage is accumulated, the Mortgagee must apply that amount to the Borrower’s account.
- Application of Partial Payments Totaling a Full Monthly Payment
(A) Standard When Partial Payments held for disposition total a full monthly payment, the Mortgagee must apply these payments to the Borrower’s account, after deduction of amounts due to the Mortgagee for Late Charges and refunds of Mortgagee advances. This application of Partial Payments as a full monthly installment advances the date of the oldest unpaid installment, but not the date on which the account first became Delinquent.
(B) Required Documentation When applying the Partial Payment totaling a full monthly payment, the Mortgagee must:
- report the appropriate Status Code in the Single Family Default Monitoring System (SFDMS); and
- advance the Oldest Unpaid Installment (OUI) date one month.
iii. Return of Partial Payments for Mortgage in Default
(A) Standard If the Mortgage is in Default, the Mortgagee may return the Partial Payment to the Borrower with a letter of explanation only under the following circumstances:
- when the payment represents less than half of the full amount then due;
- when the payment is less than the amount agreed to in an oral or written Forbearance Plan;
- when the payment is less than the amount stated in an approved Trial Payment Plan (TPP) Agreement, whether or not an executed Agreement is received by the Mortgagee;
- when the Property is occupied by a rent-paying tenant and the rents are not being applied to the Mortgage Payments;
- when foreclosure has been started; or
- when it is 14 Days or more after the Mortgagee has mailed the Borrower a statement of the full amount due, including Late Charges, which advises that it intends to refuse to accept future Partial Payments (see Application of Subsequent Payment to Unpaid Late Charges), and either of the following conditions have occurred:
- four or more full monthly installments are due but unpaid; or
- a delinquency of any amount, including Late Charges, has continued for at least six months since the account first became Delinquent.
(B) Required Documentation The Mortgagee must ensure that its servicing file reflects any Partial Payments returned to the Borrower and includes any letters of explanation for the returned payments.