I am in default on my mortgage. Last year, I submitted a loan modification application to my servicer, and it was denied. My financial circumstances have changed and I think I might qualify for a loan modification now. However, I am facing foreclosure. If I submit another loan modification application, will the servicer stop the foreclosure in order to consider the application? I live in California.
If you can show that your financial circumstances have changed significantly, your servicer should stop the foreclosure once you have submitted a completed loan modification application. This is thanks to a recently enacted California law called the Homeowners Bill of Rights (HBOR), which became effective January 1, 2013. But if you can’t demonstrate that your finances have changed, your servicer is free to continue with the foreclosure (called dual tracking).
HBOR Prohibits Dual Tracking in Most Situations
In the past few 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).
California passed legislation, HBOR, to prohibit this practice. (The five large servicers participating in the National Mortgage Settlement also agreed to forgo this practice, and starting in January 2014, there will be federal rules limiting this practice as well.) Specifically, under California law, if you submit a complete loan modification application, your mortgage servicer must temporarily stop foreclosure proceedings.
Exception: Multiple Loan Modification Applications
However, there are some exceptions to the ban on dual tracking – one of those exceptions is for second or third loan modification applications. The dual tracking prohibitions in HBOR do not apply to second or third applications for loan modifications. The policy behind this exception is to prevent homeowners from abusing the process by submitting repeat loan modifications with the sole purpose of delaying foreclosure.
Exception to the Exception: No Dual Tracking if Your Financial Circumstances Have Changed in Second Loan Modification
If, however, you have experienced a material change in your financial circumstances since your last loan modification application, the dual tracking ban will still kick in. In order to ensure the foreclosure proceedings stall, you must submit documentation with your loan modification application demonstrating those changed circumstances. Your word alone is not enough.