Dual Tracking is the industry name for the practice of letting a foreclosure case tick on even while the homeowner seeks to modify their mortgage loan. The idea is simple: the Bank will take whichever solution comes through first – a modification or a foreclosure. The problem is that the Bank holds all the cards: the Bank’s Loss Mitigation Department decides how long it takes to review and approve an application to modify your loan, while the Foreclosure process in Court has been greatly simplified and streamlined for the benefit of the Banks. Illinois mortgage foreclosure laws, even Illinois Supreme Court Rules, now permit foreclosing banks to roll over homeowners and get to a judgment.
So the question is, if you apply for a loan modification will your foreclosure action be stopped? The short answer is “No.” Your foreclosure and your application for a loan modification have been placed on 2 separate “tracks” at the Bank and it is basically up to Bank which one comes through first. Can you guess which one probably will?
While Dual Tracking has become a common practice, rules issued by the Consumer Financial Protection Bureau (CFPB), as well as the adoption of protective measures by certain States, and the results of a settlement between the Banks and various State Attorneys General, known as the National Mortgage Settlement (NMS), can come together to offer protection to homeowners.
Unfortunately, the NMS does not cover Illinois so… yeah. Dual Tracking continues.
The CFPB rules became effective on January 10, 2014 and 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.
Dual Tracking and Foreclosures
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.
Laws That Restrict Dual Tracking
In response to this issue, the CFPB has 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.
CFPB Rules Restrict Dual Tracking
The CFPB, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issued new mortgage servicing rules that went into effect as of January 10, 2014. Among other things, the rules restrict dual tracking.
Under the new rules, a mortgage servicer cannot initiate a foreclosure until 120 days after you fall behind in payments (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:
- Servicer informs you that you are not eligible for loss mitigation (and appeals are exhausted);
- You reject the workout option that the Servicer offers; or
- You accept a workout, but fail to comply with the terms of the deal
In Theory the NMR Restricts Dual Tracking (But….)
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 new 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.
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