Laws Prohibiting Dual Tracking in the Foreclosure Context

"Dual tracking" occurs when a mortgage servicer continues to foreclose on a borrower's home while simultaneously considering the borrower's application for a loan modification or other foreclosure avoidance option. In the past, dual tracking was common.

Now, though, federal law strictly limits the ability of servicers to foreclose on a borrower while also working out a loan modification or other alternative. Some states have enacted similar restrictions.

Dual Tracking and Foreclosures

During the mortgage crisis, it was typical for servicers to advance a foreclosure while telling the homeowners they were in the running for a modification or other loss mitigation 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.

Laws That Restrict Dual Tracking

Now, federal law restricts servicers from taking certain steps during 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.

Federal Law Restricts Dual Tracking

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.

In most cases, a servicer can't initiate a foreclosure until the borrower is more than 120 days delinquent on the mortgage obligation. This time period provides the borrower with ample opportunity to submit a loss mitigation application. Also, the servicer can't start the foreclosure process if a borrower submits a complete loss mitigation application and the application is pending. So, if you submit all of the required paperwork, the foreclosure can't start until:

• the servicer informs you that you're not eligible for any loss mitigation option (and any appeal you make has been exhausted)
• you reject the loss mitigation option that the servicer offers to you, or
• you accept a loss mitigation option, but fail to comply with the terms of the deal (like not making payments during a trial modification).

If you submit a complete loss mitigation application to your servicer after the foreclosure has started, but more than 37 days before a foreclosure sale, the servicer can't move for foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three events described above happens. Though, a servicer generally doesn't have to review multiple loss mitigation applications from you, unless you bring the loan current after submitting one. (12 C.F.R. § 1024.41)

Some States Have a Law Prohibiting Dual Tracking

Some states, like California, Nevada, and Minnesota, for example, have passed a Homeowner Bill of Rights that prohibits the dual tracking of foreclosures. Under these state laws, 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 can't foreclose until any applicable appeals period has expired.

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, a law that went into effect January 1, 2015 (Colo. Rev. Stat. § 38-38-103.2), 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.

To find out if your state has a law that prohibits dual tracking, talk to a lawyer.

Getting Help

If you think your 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. To learn about different foreclosure avoidance options and get help with preparing a loss mitigation application, consider making an appointment to talk to a HUD-approved housing counselor.