How to prevent payments from being applied to late fees

[mark415]

How can I prevent payments from being applied to fees?

I received a large payment sufficient for several regular payments and before satisfying all the interest due, Moneylender applied part of the payment to late fees so that the fees were completely satisfied, but a balance due was left for interest. I would prefer the opposite order of operations.

[wtech_josh]

There's a checkbox on the Loan Settings (Settings tab) for "Pay regular payment before fees" which will apply the scheduled amount to interest and principal and then apply any overage towards fees. Also of note is the adjacent checkbox for "Pay regular payment before escrow" which has a similar effect.

[mark415]

Hi Josh,

Thanks for those pointers and for jumping on the phone with me to find a solution.

You discovered that I had checked the box "Charged but not due" on the Late Fee setting on this loan. You further noted that this setting combined with an earlier waived late fee was interfering with the payment processing algorithm.

I couldn't recall why I had ever checked that box. But unchecking it solved this problem and on first investigation the change did not seem to have any negative impacts for the accounting on this loan.

Thank you,
Mark

[mark415]

Hi Josh,

I figured out why I checked the box "charged but not due" for late fees:
When the box is unchecked then "Next Payment Due" is impacted by late fees. When I generate reports (e.g. a Verification of Mortgage) I want the "Next Payment Due" to be net of late fees.

Any suggestions for this?

Thanks,
Mark

[wtech_josh]

Just uncheck the box and run your report. Maybe check the box again after, depending on whether this hypothetical new set of calculations should become the permanent history on the loan or was just to satisfy a curiosity. Be prepared to explain the change to the borrower.

Moneylender lets you change any setting at any time. If you want to run some hypotheticals, you can edit a loan's settings and run reports. Just make sure you put the settings back how they should be after your speculative itches have been scratched.



There's only one amount due account on each loan. There's only the real and actual amount that is due to be paid from the borrower. Either the fees are due to be paid, and non-payment delays the advancement of the loan; or the fees are assessed but not due to be paid and non-payment of these fees does not delay the loan. There aren't two different NextPaymentDue dates on the loan.

The contract + applicable laws + industry regulations + your personal style as a lender mean that the borrower either can slide without paying late fees, or they can't slide. You have to choose how the rules are to be followed and that determines the singular correct NextPaymentDue date for a loan.

You can, of course, indicate to Moneylender through a series of Late Fee Settings that there are periods of time where the fees are not due, and other periods of time where the fees are due. For example, you might tell the borrower that you're letting it slide in the past, but you expect them to pay off any unpaid fees and to pay the extra late fees going forward as soon as they are incurred. You'd do that with a late fee setting for the first part of the loan, and a second one that starts after the enforcement of fee collection will be changed on the loan. The first setting with the box checked, and the second is unchecked.

Moneylender won't ever see the loan in a superposition of due and also not due where it would come up with two values for the same property of the loan. You tell it the absolute and final truth about the terms of your contract through the various settings and the payment records, and it'll tell you the truth about the balances and statuses of the loan. The rules you tell it define the singular correct path for calculation. There is only one NextPaymentDue date according to your settings.


I would be very careful when providing a document to a third party that doesn't line up with the statements you're sending to the borrower.

You're the lender. You can choose to be more lenient than the contract requires. You can't choose to charge more than permitted in the contract. But you can totally waive your right to collect absolutely everything immediately. You do want to be clear about late fees on the loan, though. Make sure you're sending out late fee notice letters whenever a late fee is incurred. You don't want to surprise a borrower that made the assumption that because you weren't billing them for fees that the fees weren't being assessed at all. Good communication with the borrower requires a baseline level of effort, but will be totally worth it in the long run.

[wtech_josh]

I want to start prefacing my posts with "Feel free to think about the situation however you want. Here's how I see it..." I don't want to come off like I'm stating "inflexible facts" or anything, with the exception of the internal mechanics of Moneylender's operation. I know the mechanics of Moneylender better than anyone else.

In this case, I've talked with a handful of people as they went through various stages of foreclosure, bankruptcy, and lawsuits. The prevailing attitude was being really worried to get it provably wrong. A judge looking at statements that were sent to the borrower and being different from the statements the lender filed with the court - that was primarily what people wanted to avoid.

But I don't really know why you want those dates, and you can definitely toggle the box to see what the date would be if the setting were different. It's a perfectly valid thing to do in Moneylender - check a couple hypotheticals to see how it would have worked out with different choices.

[mark415]

Hi Josh,

Thank you for the thoughtful reply. You speak the truth.

I will just toggle that checkbox prior to running the VoM report (I put the reminder to do that right in the title of the report).

Here's my longer answer since I appreciate your thought on this question:
When I generate a "Verification of Mortgage" I want the borrower to be able to present the best possible picture (within reason) to the person verifying the mortgage. In my opinion (maybe wrong, and like you said, maybe going to bite me some day) it's OK to tell third parties that the "Next Payment due date" is the date the next regularly scheduled loan payment is due. In the case of this borrower that happened to be 8/1/22 (so he is late on the loan by about 25 days). If I were to include the missed late fee then that date would be 7/1/22. I don't think that earlier date is fair to the borrower and I also don't think it's relevant to the person verifying the mortgage that I've allowed the borrower to accrue one unpaid late fee without penalty.

Thanks for your great support!

Mark

[wtech_josh]

Orly!?

In my mind, I was picturing it in the reverse - telling the borrower they're ahead (box checked) and telling the third party they're behind (box unchecked). I was also assuming there were a lot of late fees - or at least the possibility of a lot of late fees.

In your situation, and depending on the third party that's verifying the mortgage, you're probably doing something quite reasonable: benefitting the borrower in a situation where there's some wiggle room for interpretation.

Disclaimer! What follows is just my perspective on things, and no more valid than any other reasonable perspective.

Depending on the circumstances, if this verification results in a borrowers approval for something that reduces their cost of living (lower rent, closer to work so less gas and commuting time, etc.) then presenting them as "mostly keeping it together" might improve their ability to repay your loan. On the other hand, if the result will be something that increases the borrower's financial burden, then being lenient on interpretation might put them in a situation where their performance on your loan suffers.

My thinking was always to have Moneylender as a mostly rigid abacus by default and let lenders make occasional small generosities to their borrowers. You guys are better situated to see where your money is most helpfully invested and where your repayments are most reasonably demanded. (The defaults in Moneylender will not charge a late fee if the unpaid amount at the end of the grace period is less than 1/4 of the regular payment - seemed like a reasonable place to draw a soft line in the sand that should work for most lenders.)

On your loan, I doubt anyone's going to complain about one late fee causing the dates to change. Certainly the borrower won't complain at all. In court, if you're obviously giving the borrower the benefit of interpretation or implementation, the judge will happily uphold any valid claims you make*. (*not legal advice, lol)

From a pragmatic perspective, this starts to break down as the amount of late fees begins to represent a significant portion of the regular payment. On a loan with $1000 payments, if the accrued late fees was $850, it might seem inappropriate to report them current when they are nearly a full payment behind because of late fees; a delinquency that has been steadily growing over years, but reported as though it didn't exist. Shadow fees

That was my big misgiving when I added this checkbox at the request of a lender. But their loans were informal and maybe internal, they weren't subject to outside scrutiny, and the closing was going to be a balloon anyway where they would get everything they were owed.