The Consumer Financial Protection Bureau (CFPB) provides rules and guidelines to ensure that homeowners and struggling borrowers are treated fairly by mortgage servicers. The CFPB rules are also in place to ensure no one is wrongly foreclosed upon. One of the ways the CFPB protects homeowners and struggling borrowers from being wrongly foreclosed on is by restricting mortgage servicers from dual tracking.
Dual tracking is when a mortgage servicer continues to foreclose on a homeowner while simultaneously considering the homeowner’s application for a loan modification or other non-retention alternatives. Dual tracking impacts the foreclosure process differently depending on where you are in the foreclosure process. Mortgage Servicers are generally restricted from commencing a foreclosure action until a mortgage loan obligation is more than 120 days delinquent. The 120 day time frame between a mortgage default and when a mortgage servicer is able to begin the foreclosure process by filing a summons and complaint provides struggling borrowers with an opportunity to submit a loan modification application. Mortgage servicers are however permitted to send early delinquency notices that may provide information regarding counseling, available resources and legal assistance during the 120 days that a borrower is delinquent with their mortgage payment. On the 121st day and beyond, a mortgage servicer may commence the foreclosure process by filing a summons and complaint in New York. However, if the mortgage servicer fails to commence the foreclosure process after the 120-days AND the borrower submits a complete loan modification application, the mortgage servicer is prevented from commencing the foreclosure process unless: (a) the servicer advises the borrower they are not eligible for any loss mitigation options (and any appeal has been exhausted); (b) the borrower rejects all loss mitigation offers; or (c) the borrower does not comply with the terms of a loss modification option such as trial modification. If the servicer receives an incomplete application AND it is more than 120-days the borrower has been delinquent, the mortgage servicer may proceed with the foreclosure process.
The CFPB also restricts the continuation of 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 commenced, but more than 37 days before a foreclosure sale, a servicer may not proceed for the entry of a foreclosure judgment, schedule or conduct a foreclosure sale until one of the above-mentioned three (3) conditions have been met. Once the servicer has a complete application, they must place the foreclosure on hold and advise foreclosure counsel of same.
In NY, Judges and Referees have varying interpretations of this rule and they rule according to their understanding of the mortgage servicer’s obligations under the rule against dual tracking. There are Judges who will tell foreclosure counsel they are not bound by the CFPB rules and accordingly direct counsel to move the case along. Moreover, there are a number of Judges and Referees who understand the rule against dual tracking to mean servicers must withdraw any pending motions before the Court because they received a loan modification application. Specifically, with these Judges and Referees, it does not matter if the loan application is complete; all that matters is that an application was submitted. Lastly, there are a few Judges who are unmoved by a mortgage servicers compliance with the CFPB rules against dual tracking; they are only concerned with the number of times the case has been on their calendar. Overall, foreclosure counsel is usually charged with the task of educating the Court about the applicable rules and the application thereof as it pertains to dual tracking.