New government rules will end the practice of foreclosure “dual tracking,” cases where borrowers enrolled in loan modification programs are simultaneously foreclosed.
The new regulations give borrowers powerful new foreclosure protections and essentially require loan servicers to help prevent foreclosures in situations where borrowers are seeking modifications or short sales on a timely basis.
As an example, a family with an FHA loan, VA mortgage or conventional loan seeks a loan modification under the government’s Making Home Affordable program. New loan terms are created but during the three-month trial period to see if the borrower can make required repayments the loan servicer moves ahead and forecloses.
This process is called “dual tracking” because it may well be that one loan servicer is trying to help with the modification while a second office with the same loan servicer is filing foreclosure papers.
Several standards apply under the new rules:
“If a borrower submits an application for a loss mitigation option, the servicer is generally required to acknowledge the receipt of the application in writing within five days and inform the borrower whether the application is complete and, if not, what information is needed to complete the application. The servicer is required to exercise reasonable diligence in obtaining documents and information to complete the application.”
Translation: Borrowers should demand a written acknowledge that they are seeking a loan modification to prevent dual tracking later in the modification process.
“For a complete loss mitigation application received more than 37 days before a foreclosure sale, the servicer is required to evaluate the borrower, within 30 days, for all loss mitigation options for which the borrower may be eligible in accordance with the investor’s eligibility rules, including both options that enable the borrower to retain the home (such as a loan modification) and non-retention options (such as a short sale).”
Translation: The loan servicer is obligated to examine “all loss mitigation options” when trying to prevent a foreclosure. This phrase will open the door to foreclosure defense attorneys when a loan modification or short sale is denied, lawyers will ask if a foreclosure decision was made consistent with the rules.
“A borrower may appeal a denial of a loan modification program so long as the borrower’s complete loss mitigation application is received 90 days or more before a scheduled foreclosure sale.”
Translation: Don’t wait. Get started on a loan modification under the Making Home Affordable as quickly as possible.
120 Days & Dual Tracking
“The rule restricts ‘dual tracking,’ where a servicer is simultaneously evaluating a consumer for loan modifications or other alternatives at the same time that it prepares to foreclose on the property. Specifically, the rule prohibits a servicer from making the first notice or filing required for a foreclosure process until a mortgage loan account is more than 120 days delinquent.”
Translation: While a loan is being modified a lender cannot step in with a foreclosure.
After 120 Days
“Even if a borrower is more than 120 days delinquent, if a borrower submits a complete application for a loss mitigation option before a servicer has made the first notice or filing required for a foreclosure process, a servicer may not start the foreclosure process unless (1) the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted), (2) a borrower rejects all loss mitigation offers, or (3) a borrower fails to comply with the terms of a loss mitigation option such as a trial modification.”
Translation: If a lender does not act quickly a borrower may still be able to claim foreclosure protection.
For details and specifics please contact an attorney or your state attorney general. Other good sources of information which may have pro bono programs include community housing organizations, law schools and local bar associations.