A few states, including Colorado, Minnesota, and Nevada, have passed laws giving homeowners special protections during the foreclosure process.
Colorado law provides are two key protections for homeowners who are seeking a way to avoid a foreclosure: Dual tracking is prohibited (Colo. Rev. Stat. § 38-38-103.2) and the servicer has to appoint a single point of contact for the borrower (Colo. Rev. Stat. § 38-38-103.1).
"Dual tracking" happens when the servicer proceeds with a foreclosure even though the borrower is pursuing a loss mitigation option, like a loan modification. During the foreclosure crisis, dual tracking was very common and homeowners often lost their homes to foreclosure before the loss mitigation process was completed or, in some cases, even when a workout agreement was in place.
In Colorado, the trustee can stop the sale if the servicer dual tracks. Now, Colorado law gives the public trustee (the party that administers Colorado foreclosures) the ability to stop a foreclosure sale from happening when a borrower:
You must ask the public trustee to stop the sale. To stop the foreclosure sale, you must present to the public trustee (no later than 14 calendar days before the sale date):
The public trustee will then contact the attorney for the lender or servicer (or the lender or servicer, if there is no attorney) and ask about the status of loss mitigation. The public trustee will postpone the sale until a response is received.
What happens if the lender or servicer acknowledges that loss mitigation is pending. If the lender or servicer acknowledges that loss mitigation is pending, the public trustee will postpone the sale. The lender or servicer will then eventually cancel the foreclosure, so long as you remain in compliance with the terms of the agreement.
What happens if the lender or servicer states that there's no pending application or agreement. On the other hand, if the lender or servicer responds that there is no pending loss mitigation or that you are not complying with the terms of a loss mitigation agreement, the public trustee will continue with the foreclosure sale. If the lender or servicer incorrectly informs the public trustee that it is not dual tracking and the trustee decides to proceed with the sale, you should immediately contact an attorney to figure out your next steps.
In the past, borrowers who applied for loss mitigation normally had to deal with several different servicer employees who frequently didn't know what was happening with the application. Colorado law now requires that, no later than the 45th day of a borrower's delinquency, the servicer must establish a single point of contact for the borrower to talk to about foreclosure matters, including:
One important thing to note is that if the servicer complies with federal mortgage servicing laws, it is considered in compliance with Colorado law.
The protections of Colorado's law apply to mortgage loans for residential properties that are:
Some smaller servicers are exempt from Colorado's dual tracking and single point of contact requirements.
The Nevada Homeowner's Bill of Rights provides protections for borrowers facing possible foreclosure in Nevada. (Nev. Rev. Stat. § 107.400 and following).
Here are a few of the main requirements:
At least 30 calendar days before recording a notice of default or starting a judicial foreclosure action and at least 30 calendar days after a borrower's default, the servicer must provide the borrower a written notice containing, among other things:
The servicer must contact the borrower in person or by telephone to discuss the borrower's financial situation and to explore options to avoid foreclosure 30 days prior to starting a foreclosure. Though, if the servicer is unable to reach the borrower, it may proceed with foreclosure if it meets certain calling and mailing requirements.
Once the borrower submits a complete loss mitigation application, the foreclosure is stalled while the loan servicer reviews the application and makes a decision. Even if the lender denies the loss mitigation, it still generally can't foreclose until any applicable appeals period—usually 30 days—has expired.
Under the Nevada Homeowner's Bill of Rights, the servicer must establish a single point of contact whose responsibilities include:
The contact person remains assigned to the account until all loss mitigation options are exhausted or until the borrower brings the account current.
The Nevada Homeowner's Bill of Rights protections generally apply to first mortgage loans for properties that are residential, and owner-occupied. But the protections do not apply to borrowers who have:
Institutions that foreclosed on 100 or fewer owner-occupied homes in the preceding annual reporting period, as established by their primary regulator, are exempt from the requirements under the Homeowner's Bill of Rights.
Minnesota's Homeowner Bill of Rights prohibits certain actions, like dual tracking, and requires servicers to assist borrowers in the loss mitigation process. (Minn. Stat. § 582.043).
Here are a few of the main requirements of the law:
After the borrower requests a loan modification or other loss mitigation option, the loan servicer must:
Once the borrower submits a complete loss mitigation application, the foreclosure is stalled while the loan servicer reviews the application and makes a decision. Even if the lender denies the loss mitigation, the servicer still can't foreclose until:
If the servicer receives a borrower's loss mitigation application before midnight on the seventh business day before the foreclosure sale date, the foreclosure stops while the servicer evaluates the application. This provision is stricter than federal regulations, which will require the borrower to submit the application more than 37 days before the sale.
The protections afforded to borrowers by the Minnesota Homeowner Bill of Rights generally apply to first mortgage loans for properties that are:
Smaller servicers are exempt from the law, but they can't pursue a foreclosure if a borrower is in compliance with the terms of a loan modification or other loss mitigation agreement.
If you live in Colorado, Minnesota, or Nevada and believe that your lender or servicer has violated any of the laws mentioned in this article, consider talking to a foreclosure attorney in your state to find out what to do in your particular circumstances.
If you don't live in one of these states and want to find out if there are any special protections for homeowners in foreclosure in your state, contact a local foreclosure attorney.