I live in California and was struggling to pay my mortgage. I recently applied for a mortgage loan modification under the government’s HAMP program. I was approved and am making payments under the trial loan modification plan. (I have made two out of the three required trial payments.) However, I just got a notice of default from my mortgage lender. Does this mean the bank is starting the foreclosure process? Can the bank do this?
No. In almost all cases, the lender cannot start a foreclosure if you are making payments in compliance with your HAMP trial period plan.
In California, a law called the Homeowners Bill of Rights (HBOR), which became effective January 1, 2013, prohibits dual tracking -- that is, continuing with foreclosure while simultaneously considering a homeowner’s application for a loan modification or while a homeowner is in compliance with an approved foreclosure prevention alternative (such as a loan modification).
HBOR Prohibits Dual Tracking
Specifically, under HBOR, the servicer may not record a notice of default (the first official step in the California foreclosure process) if you are in compliance with the terms of a written trial or permanent modification agreement (Cal. Civ. Code § 2924.11(a)(1)). (Learn more about general foreclosure laws and procedures in California.)
Applicability of HBOR
HBOR generally applies only to first lien mortgages and deeds of trust on owner-occupied properties (Cal. Civ. Code § 2924.15(a)). (Learn about the difference between mortgages and deeds of trust.) This means it doesn't apply to second mortgages or HELOCs.
One Situation Where HBOR Would Not Apply
Since HBOR only covers owner-occupied homes, if you were making payments under a HAMP Tier 2 trial period plan for a rental property (a property that you rent out or intend to rent out and do not occupy), you would not be entitled to protection under this law. (Learn more about HAMP Tier 1 and Tier 2.)
Even though HBOR doesn't apply to rental properties, HAMP guidelines prevent dual tracking in some situations involving rental properties. For example, if the loan is non-GSE, which means the loan is not owned or guaranteed by Fannie Mae or Freddie Mac, the foreclosure could continue but the servicer must provide a written notification that:
- explains the modification and foreclosure processes, and
- states that even though certain foreclosure activities may continue, the home will not be sold at a foreclosure sale while the homeowner is making payments under the trial period plan.
Remedies if Your Lender Violates HBOR
If your lender sent the notice of default in violation of HBOR, you may:
- seek a court order stopping the foreclosure (this is called an injunction), or
- sue for damages if the foreclosure sale has already taken place. If a court finds that the violation was intentional, reckless, or resulted from willful misconduct, in addition to damages you might also get triple damages or $50,000 (whichever is greater) and attorney’s fees and costs.
Other Laws That Prohibit Dual Tracking
In the past, many homeowners found themselves in a dual tracking situation and all too often a foreclosure occurred while the homeowner was seeking a loan modification or was in compliance with an approved plan. To address this problem, not only has California implemented HBOR, but also:
- the federal government implemented new mortgage servicing rules as of January 2014 protecting homeowners from dual tracking
- Minnesota and Nevada passed their own Homeowner Bill of Rights laws, and
- the national mortgage settlement prohibits the five servicers participating in the settlement from dual tracking. (Read more about the terms of the settlement in Nolo’s article National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure.)
When to Hire an Attorney
If you believe that your lender illegally started a foreclosure even though you are in compliance with the terms of an approved trial modification or permanent loan modification, you should consult with an attorney immediately who can advise you what to do in your particular circumstances.