Dual tracking occurs when a mortgage servicer continues to foreclose on a homeowner’s home while simultaneously considering the homeowner’s application for a loan modification. In the past, dual tracking was common. However, rules issued by the Consumer Financial Protection Bureau (CFPB) as well as various state laws and the National Mortgage Settlement (NMS) offer protection to homeowners in this situation.
The CFPB rules, which became effective January 10, 2014, strictly limit the ability of mortgage servicers to foreclose on a borrower while also negotiating a loan modification. Some states have already enacted similar restrictions and the NMS has limits as well, although it only covers certain lenders.
Read on to learn more about laws that restrict dual tracking.
During the mortgage crisis, it was typical for mortgage servicers to advance a foreclosure while telling the homeowner he or she was in the running for a loan modification. In most cases, the homeowner would end up with whichever one was completed first, usually a foreclosure. Because of this practice, called dual-tracking, many homeowners who were sure that a loan modification was forthcoming were shocked to ultimately lose their homes to foreclosure.
In response to this issue, the Consumer Financial Protection Bureau issued a rule and certain states have passed laws in recent years to restrict mortgage servicers from continuing the foreclosure process if the homeowner is working on securing a loan modification. Under these laws, when you submit a complete application for a loan modification, the foreclosure process must be halted until the application has been fully reviewed.
The CFPB, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issued mortgage servicing rules that went into effect as of January 10, 2014. Among other things, the rules restrict dual tracking.
Under the rules, a mortgage servicer cannot initiate a foreclosure until you're more than 120 days delinquent (which provides a reasonable amount of time to submit a loan modification application). Also, the servicer cannot start the foreclosure process if a loss mitigation application is pending.
If you submit a complete loss mitigation application to your mortgage servicer after the foreclosure has started, but more than 37 days before a foreclosure sale, the servicer must stop the foreclosure process until:
(Find out more about the CFPB’s mortgage servicing rules in Nolo’s article Federal Rules Protecting Homeowners With Mortgages and at the CFBP website.)
California, Nevada, and Minnesota have each passed a Homeowner Bill of Rights that prohibits the dual tracking of foreclosures. This means that, under state law, mortgage servicers must either grant or deny a first-lien loss mitigation application before beginning or continuing the foreclosure process. Even if the lender denies the loan modification, it still cannot foreclose until any applicable appeals period has expired. (Learn more about the California, Nevada, and Minnesota Homeowner Bill of Rights.)
A few months after California passed it’s Homeowner Bill of Rights, a homeowner who had submitted a complete loan modification application successfully used the law to get a preliminary injunction to stop the foreclosure sale in the case of Singh v. Bank of America, 2013 WL 1858436 (E.D. Cal. May 1, 2013). In this case, the servicer never informed the homeowner of its decision regarding the homeowner’s loan modification application before proceeding with the foreclosure. Eventually, the parties settled and the case closed.
In Colorado, House Bill 14-1295 (which went into effect January 1, 2015) gives the public trustee (the party that administers Colorado foreclosures) the power to stop a foreclosure sale from occurring when a homeowner is in the process of applying for an alternative to foreclosure or the homeowner has accepted (and is in compliance with) a loss mitigation option, such as a loan modification. (Learn more in Nolo's article New Colorado Law Helps Homeowners in Foreclosure.)
In 2012, 49 state attorneys general and the federal government reached a historic settlement with five of the nation’s largest banks (Bank of America, Citi, JPMorgan Chase, Wells Fargo, and Ally/GMAC) that set standards when it comes to mortgage servicing, including a restriction on dual tracking.
Like with the CFPB rules, under the settlement, if you submit a complete loan modification application more than 37 days before the scheduled foreclosure sale, the servicer cannot proceed to sale while the application is pending. And, if you submit your application at least 15 days before the scheduled foreclosure sale, the servicer must review the application and, if you are approved for a loan modification, it cannot foreclose unless you reject the offer or fail to live up to the terms of the trial modification.
Under the settlement, these servicing standards are required only until the later part of 2015. (Learn more in Nolo’s article National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure.)