Unapplied funds kept for their atty fees

[Rudolph]

Ok, I filed Chapter 7 and was discharged in Nov last year. I intended to reaffirm, that box was checked on the BK papers, but I never signed any reaffirm papers. I just kept trying to make my payments, but fell behind. I sent a payment at the beginning of June. At the same time, the lender sends me a NOD, stating how much to reinstate, and that there was 283.00 in unapplied funds. The reinstatement amount did not reflect the payment I just sent. So, I called the lender to get the status, and they told me that yes, the just got the payment, and that it was in an unapplied funds account, and they would "probably" send it back to me, and to deal directly with the lawyers who sent the NOD. I made the decision then to just let the house go back, since it was showing up on the credit reports as IIB and 0 balance. Today, I called the lender to find out the status of the unapplied funds. Obviously, if I had gotten the NOD one day sooner, I would never have sent the money. Their agents told me they cannot return the funds because they are going to use them to cover the attorney fees for the attorney they hired to represent me in the foreclosure. News to me. I told the agent I didn't need an atty, and the debt was already discharged, and how could they apply funds to fees when they should be applied to interest and principle first. Anyway, can they do this, keep funds for their "fees" first, and not apply to the actual loan? If anything, I'd prefer some of the funds to go to the insurance and taxes, at least. Total is just over 1800.00 at this point.