Forbearance Agreement Issue

[Michigander19]

I am a junior tax accountant and I am in need of a legal opinion on something I am working on for one of my friends.  He and his wife were laid off from work for awhile, fell behind in mortgage payments, and have entered into a forbearance agreement with their mortage company.  Please be patient with the facts below. 

This is what they owe:
October 2008 Payment  $1250.00
October 2008 Late Fee  $   50.00
November 2008 Payment $1250.00
November 2008 Late Fee $50.00
November 2008 House Inspection $20.00  (paid by mortgage co and assessed to couple)
December 2008 Payment $1250.00
December 2008 Late Fee  $50.00
January 2009 Mortgage Payment  $1250.00
January 2009 Late Fee  $50.00
January 2009 House Inspection $20.00
January 2009 Legal Fees for Foreclosure $1300.00 (paid by mortgage co. assessed to family)
February 2009 family stops foreclosure by entering into forbearance agreement
February 2009 Mortgage Payment $1250.00
February 2009 Late Fee  $50.00
March 2009 Mortage Payment  $1250.00

They started to make payments of $1000.00 on Feb 15th, March 1st and forward on the 1st & 15th of each month until caught up.
The Mortage Note states in "Application of Payments" section, all payments shall be applied by lender as follows: First to the mortgage insurance premium, second to any taxes, special assesments and fire, flood and other hazard insurance, Third to interest due under the Note, Fourth to amortization of principal of the note and Fifth to late charges due under the Note.

With that in mind, how is the Lender supposed to apply the payments going forward?  As of this date, they have approximately $300.00 in Mortgage Insurance Premiums (MIP) due, $1,200 in taxes, assessments & hazard insurance due to escrow, $5000 in interest due, $1000 in principal, and Fees of $1590 for late fees/home inspections/attorney costs of mortgage co.

They have paid $2000 so far.  Do you apply in the order of transactions as they occurred and apply to the October payment due, the October late Fees and partial application to the November payment?  OR, do you apply the $2000 first to the MIP outstanding, then $1200.00 to the taxes, asessments & hazard insurance, with the remaining $500 going towards interest?  Last question, are the home inspection fees and lawyer fees considered "assessments" and then have to be paid off before interest?

Thanks for the help.