Dual tracking occurs when a mortgage servicer—the company that handles your loan account—continues to foreclose on a homeowner’s home while simultaneously considering the homeowner’s application for a loan modification or other foreclosure avoidance option. In the past, dual tracking was common. Now though, federal law mortgage servicing laws, as well as various state laws, offer some protection to homeowners in this situation.
Federal laws, which became effective January 10, 2014, strictly limit the ability of mortgage servicers to foreclose on a borrower while also working out a loan modification or other alternative to foreclosure. Some states have also enacted similar restrictions.
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 or other mortgage workout option. 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, federal law restricts mortgage servicers from continuing the foreclosure process if the homeowner is working on securing a loan modification or other alternative to foreclosure. Some states have this type of law as well. Under these laws, when you submit a complete application for a "loss mitigation" (foreclosure avoidance) option, the foreclosure process generally must be halted until the application has been fully reviewed.
The Consumer Financial Protection Bureau, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issued mortgage servicing rules that, after being codified into federal law, went into effect as of January 10, 2014. Among other things, the rules restrict dual tracking.
Under the law, a mortgage servicer cannot initiate a foreclosure in most cases until you're more than 120 days delinquent on the mortgage obligation, which provides a reasonable amount of time to submit a loss mitigation application.
Also, the servicer cannot start the foreclosure process if a borrower submits a complete loss mitigation application and the application is pending. This means that if you submit all of the required paperwork, the foreclosure can't start until:
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 one of the three events described above happens. (Find out more about the federal 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 Colorado Law Helps Homeowners in Foreclosure.)
If you think your mortgage servicer is dual tracking a foreclosure and your loss mitigation application, consider talking to a foreclosure attorney who can advise you what to do in your particular circumstances.