I am in default on my mortgage and will soon be in foreclosure. I cannot afford to keep my home and am hoping to do a short sale. If I start the short sale process, will my mortgage servicer be required to stop foreclosure proceedings while it is pending?
California’s new foreclosure protection law, the Homeowner Bill of Rights, requires mortgage servicers to temporarily halt foreclosure proceedings while considering a loan modification application or another foreclosure alternative, like a short sale or deed in lieu of foreclosure. But there’s a catch: The ban on dual tracking (more on that below) only kicks in once the servicer has approved the short sale. If you haven’t started the short sale process yet, that might prove to be an insurmountable timing barrier.
California’s Homeowner Bill of Rights (HBOR)
In past years, mortgage servicers have been notorious for dual tracking -- continuing with foreclosures while simultaneously considering a homeowner’s application for a loan modification under the federal Making Home Affordable programs (the most popular program is HAMP) or another loss mitigation option, like a short sale or deed in lieu of foreclosure.
California passed HBOR, which became effective on January 1, 2013, to prohibit this practice and to impose other requirements on mortgage servicers. The goal of HBOR is to provide more protection for homeowners, provide a meaningful opportunity for homeowners to explore loan modifications and other alternatives to foreclosure, and inject more fairness into the foreclosure process.
HBOR’s Ban on Dual Tracking
HBOR specifically prohibits servicers from continuing with foreclosure proceedings if:
- a homeowner has submitted a complete loan modification application, or
- a foreclosure prevention alternative has been approved.
The dual tracking ban applies to both large and small mortgage servicers (some of the other HBOR requirements only apply to large servicers). And short sales and deeds in lieu come under the “foreclosure prevention alternative” category. But here’s the rub: Your servicer is barred from continuing foreclosure proceedings only when it has approved the short sale deal in writing. This means that the servicer can initiate a foreclosure or continue with a foreclosure if you are considering a short sale, are negotiating with a buyer, or even have a short sale offer. It’s not until the servicer signs off on the deal that the dual tracking ban kicks in.
Short Sales Take Time
In order to get approval for a short sale, you must submit a loss mitigation application to your loan servicer. (Learn what is involved in the short sale process.) In addition, your servicer will review any offers you get – and has final say so over approval. The whole process takes time. How much time depends on the servicer, the market for your property, and other factors. (Learn how to overcome obstacles in the short sale process.)
You should contact a local real estate agent that has substantial experience with short sales to discuss whether short sale of your home is a realistic goal, and, if it is, to start the process right away.