I did some more reading, and I am going to reverse at least part of my response above. In the prefatory comments to the publication of the Regulation Z Servicing Rule, we see the following in a discussion of the prompt crediting rule at 1026.36(c)(1):
Because the definition of "periodic payment" is intended to reflect the consumer's contractual obligation, to the extent a consumer's mortgage loan has been accelerated (such that the periodic payment constitutes the total amount owed for all principal and interest), or that certain obligations for force-placed insurance or delinquent taxes have been paid through the escrow account, those amounts may be appropriately accounted for within this definition of a periodic payment. [78 FR 10954]
So it appears you could refuse a consumer's attempt to pay only part of the full balance and interest due once a formal demand notice has been sent in conformity with the loan contract, even if the loan is not 120 days delinquent.
I will stick to my recommendation that you run the practice by legal counsel familiar with state law and the terms of the loan contract.
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John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8