Chet always paid his mortgage on time. When he had extra money, he would make a pre-payment against his loan's principal balance by sending a separate check with a letter indicating that he was making a pre-payment. Pursuant to the terms of his promissory note, this was sufficient to ensure that the bank was properly applying his prepayments towards his principal balance. In total, Chet pre-paid $45,000 towards his loan's principal balance over the course of 4 years. His goal from the time he took the mortgage was to pay it off as quickly as possible.
In late-2010, Chet was laid off from his position with the U.S. Department of Education, where he monitored student loan providers for 15 years. Although he was able to make mortgage payments with a combination of his unemployment benefits and savings, Chet soon ran out of savings and was forced to default on his mortgage. When he was served with a foreclosure summons and complaint, Chet hired a seasoned foreclosure defense attorney. After reviewing the complaint, Chet and his attorney noticed that the amount due alleged in the complaint was significantly higher than it should be. Chet provided his attorney with his mortgage statements from the past five years.
After carefully examining the statements, it was evident that his lender had not been properly or accurately applying his pre-payments towards principal, but was instead applying those payments towards interest. In his answer to the foreclosure complaint, Chet asserted the $45,000 in pre-payments as a setoff against the total amount owed. Had his payments been properly applied, Chet would have a significantly lower amount of money to pay in order to redeem his loan. Given that Chet had been paying his mortgage on time for a long time, and given the equity in his home, Chet was able to refinance his loan to a lower interest rate with better terms and avoid foreclosure.