The Consumer Financial Protection Bureau (CFPB) introduced new rules that became effective in January 2014. Dual-tracking is a situation where a mortgage lender continues a foreclosure action against a delinquent borrower while simultaneously working with the borrower to avoid foreclosure. The new rules originated from the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The problem with dual-tracking for borrowers is that many people were foreclosed upon even though their lender told them they were being considered for a loan modification, short sale, or deed-in-lieu of foreclosure. We have seen situations where a homeowner was told that their short sale was verbally approved and that a written approval was coming in the next few days. However, the bank foreclosed on them shortly thereafter, having never issued a written approval as promised. The lender’s negotiators typically take no responsibility whatsoever, claiming that they could not convince their own employer to stop the foreclosure action.
Lenders preferred to engage in dual-tracking because they could quickly foreclose on a borrower if the loan modification, forbearance, short sale, or deed-in-lieu process failed or if the process was taking too long. However, in many instances the process was taking so long because of the lender’s bureaucracy, high staff turnover, and ever-changing policies. So, the lender created the very situation that caused them to fail to make a decision on whether to approve an alternative to foreclosure.
The new CFPB rules do not prohibit dual-tracking entirely. The rules do impose some limits. The main stipulations are:
- A lender cannot initiate a foreclosure until 120 days after a borrower falls delinquent.
- A lender cannot start a foreclosure if a borrower has a pending application for a loan modification.
- A lender must give borrowers who are two months behind written notice of alternatives to foreclosure and examples of those options.
- A lender must provide delinquent borrowers with direct, easy, ongoing access to staff responsible for helping them with their application and reporting the status of an application.
- If a borrower asks for a loan modification after the 120-day delinquency period, the lender may continue the foreclosure process.
- A servicer must offer all foreclosure alternatives available from the investor or loan owner, and not just the option that is most financially favorable to the servicer.
- Before interest rates adjust, lenders must provide clear mortgage statements with warnings about the upcoming adjustment.
- Lenders must consider and respond to a borrower’s application for a loan modification if it arrives at least 37 days before a scheduled foreclosure sale. If the lender offers an alternative to foreclosure, they must give the borrower time to accept the offer before pushing for a foreclosure judgment or a foreclosure sale. Lenders may not foreclose on a property if the borrower and the lender have agreed to a loss mitigation agreement, as long as the borrower abides by that agreement.
- Banks that service 5,000 or fewer loans are exempt from certain requirements.
- Lenders must provide to the borrower advance notice and pricing on force-place insurance if the lender has reason to believe that the property is no longer insured by the borrower.