We recommend reviewing your loan documents to determine whether a partial payment can be applied to a late fee when monthly periodic payments remain outstanding.

For example, Fannie Mae’s standard mortgage provides that payments should be applied to each periodic payment in the order in which it became due, beginning with the oldest outstanding periodic payment. If all periodic payments “then due are paid in full, any payment amounts remaining may be applied to late charges and to any amounts then due under [the mortgage].” If your loan documents contain a similar provision, we do not believe you would be allowed to apply the partial payment of $100 to the January late fee while the February and March payments remain outstanding. Consequently, we recommend reviewing the terms of your loan documents with your bank counsel to determine how the partial payment must be applied.

Additionally, we note that Regulation Z requires any partial payments placed in a suspense or unapplied funds account to be reflected on the periodic statement, along with an explanation of what must be done for the funds to be applied.

For resources related to our guidance, please see:

• Fannie Mae, Standard Security Instruments, Illinois (“Order of Application of Partial Payments and Periodic Payments. Except as otherwise described in this Section 2, if Lender applies a payment, such payment will be applied to each Periodic Payment in the order in which it became due, beginning with the oldest outstanding Periodic Payment, as follows: first to interest and then to principal due under the Note, and finally to Escrow Items. If all outstanding Periodic Payments then due are paid in full, any payment amounts remaining may be applied to late charges and to any amounts then due under this Security Instrument. If all sums then due under the Note and this Security Instrument are paid in full, any remaining payment amount may be applied, in Lender’s sole discretion, to a future Periodic Payment or to reduce the principal balance of the Note.

  If Lender receives a payment from Borrower in the amount of one or more Periodic Payments and the amount of any late charge due for a delinquent Periodic Payment, the payment may be applied to the delinquent payment and the late charge. When applying payments, Lender will apply such payments in accordance with Applicable Law.”)
   

• Regulation Z, 12 CFR 1026.41(d)(5) (“Partial payment information. If a statement reflects a partial payment that was placed in a suspense or unapplied funds account, information explaining what must be done for the funds to be applied. The information must be on the front page of the statement or, alternatively, may be included on a separate page enclosed with the periodic statement or in a separate letter.”)
   
• Regulation Z, Official Interpretations, Paragraph 41(d)(4), Comment 3 (“If a partial payment is sent to a suspense or unapplied funds account, this fact must be in the transaction description along with the date and amount of the payment.”)