Dual Tracking: Where Foreclosure and Loss Mitigation Collide
Homeowners who find themselves with a delinquent mortgage will typically receive information from their mortgage company about loss mitigation, which is a process many mortgage servicers are required to undertake to help a borrower avoid foreclosure and “mitigate” potential losses to the mortgage company. Loss mitigation can take several forms, including a repayment plan or loan modification that allow the borrower to retain the home and catch up on their mortgage. There are also options that allow the borrower to give up the home without going through the foreclosure process, such as a short sale agreement or a deed in lieu of foreclosure. No matter which type of loss mitigation is undertaken, Regulation X, 12 C.F.R § 1024.41 and the statute it was promulgated under, the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601, et seq. help protect homeowners undertaking the loss mitigation process by prohibiting a practice called “dual tracking”. Dual tracking occurs when a mortgage servicer attempts to foreclose on a homeowner while simultaneously considering their application for loss mitigation.
The impact of dual tracking on the foreclosure process varies depending on the stage of the process. Generally, mortgage servicers are prohibited from initiating a foreclosure action until a mortgage loan obligation is more than 120 days overdue. This 120-day period following a mortgage default allows borrowers an opportunity to submit an application for loss mitigation. Once the 120-day period expires, the mortgage servicer may immediately start foreclosure proceedings. However, if the mortgage servicer doesn’t begin the foreclosure process immediately and the borrower submits a complete loan modification application in the meantime, the servicer is prohibited from starting the foreclosure process unless: (a) the servicer informs the borrower that they are ineligible for any loss mitigation options (and any appeals have been exhausted); (b) the borrower declines all loss mitigation offers; or (c) the borrower does not adhere to the terms of a loss mitigation option, such as making payments under a trial loan modification. In cases where the servicer receives an incomplete application and more than 120 days have passed since the borrower's delinquency, the mortgage servicer may proceed with the foreclosure process.
Regulation X also places restrictions on continuing a foreclosure after the borrower submits a complete loss mitigation application. If a borrower submits a complete application for a loss mitigation option after the foreclosure process has started, but more than 37 days before a foreclosure sale, the servicer is prohibited from conducting a foreclosure sale until one of the three aforementioned conditions is met. Once the servicer possesses a complete application, they must halt the foreclosure proceedings and inform foreclosure counsel accordingly.
The 37-day cutoff is critical for borrowers, especially those in Georgia where the law only requires a 30-day notice before the foreclosure sale. If a borrower waits until after they receive a notice of foreclosure to begin the loss mitigation application process, Regulation X does not provide protections to the borrower, even if the borrower submits a complete loss mitigation application during that time. It is therefore imperative that borrowers begin working with their mortgage company as soon as possible to resolve any delinquency.
Regulation X and RESPA are complicated laws, but the attorneys at Weber Pierce can help borrowers navigate the protections afforded to them during the loss mitigation process. If you have questions regarding dual tracking or the foreclosure process in general, contact us today.
*This post is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog, you understand that there is no attorney-client relationship between you and Weber Pierce, LLC.