What Is Dual Tracking in the Foreclosure Process?

Dual tracking in the foreclosure process refers to a situation where a mortgage servicer simultaneously pursues foreclosure actions while also evaluating a homeowner’s application for a loan modification or another foreclosure prevention option. It allows two distinct processes, one aiming to resolve the delinquency and the other to seize the property, to advance concurrently. This dual approach was once common, often leading to homeowners losing their homes even while believing a resolution was imminent.

Defining Dual Tracking

Dual tracking specifically involves a mortgage servicer advancing the foreclosure process while, at the same time, considering a homeowner’s “loss mitigation application.” A loss mitigation application is a request from a borrower for options to avoid foreclosure, such as a loan modification, a repayment plan, or a short sale. The core issue arises because these two “tracks” operate in parallel: the servicer’s foreclosure department may continue legal proceedings while its loss mitigation department reviews the application.

The problem for homeowners stems from the potential for confusion and false hope. Homeowners might diligently submit all required documents for a modification, only to be blindsided by a foreclosure sale or judgment. This practice often resulted in whichever process concluded first, typically the foreclosure, leaving homeowners without the anticipated resolution.

A “complete loss mitigation application” is central to the definition of dual tracking. This term signifies that the servicer has received all the information it requires from the borrower to evaluate available loss mitigation options. This typically includes a detailed description of the homeowner’s financial hardship, along with supporting documents such as recent pay stubs, bank statements, and tax returns.

Prohibited Lender Actions During Review

Once a mortgage servicer receives a complete loss mitigation application, federal regulations place specific restrictions on the foreclosure actions they can take. These prohibitions are outlined in Regulation X, and are enforced by the Consumer Financial Protection Bureau (CFPB). These rules, which became effective in January 2014, aim to protect homeowners by preventing servicers from proceeding with foreclosure while a complete application is under review.

Specifically, if a homeowner submits a complete loss mitigation application more than 37 days before a scheduled foreclosure sale, the servicer cannot move for a foreclosure judgment or order of sale. This prohibition also extends to conducting the actual foreclosure sale itself. Furthermore, servicers are generally restricted from making the first notice or filing required by state law for any foreclosure process until the mortgage loan account is more than 120 days delinquent.

This 120-day period provides homeowners an opportunity to submit a loss mitigation application before foreclosure proceedings. The regulations prevent dispositive motions, such as motions for default judgment or summary judgment, that could directly lead to a foreclosure judgment while an application is pending. These measures are designed to ensure that homeowners have a fair chance to explore alternatives to foreclosure without facing simultaneous legal action to take their home.

Permitted Foreclosure Actions

While dual tracking is largely prohibited, there are specific circumstances under which a mortgage servicer is permitted to proceed with foreclosure actions, even if a loss mitigation application has been submitted. For instance, if a homeowner has not submitted a complete loss mitigation application, the servicer may generally continue with the foreclosure process. The responsibility lies with the homeowner to provide all necessary documentation to complete the application.

A servicer can also resume or initiate foreclosure if they have informed the borrower that they are not eligible for any loss mitigation option, and any available appeal process has been exhausted. Similarly, if the homeowner rejects all loss mitigation offers made by the servicer, the servicer is then permitted to proceed with foreclosure. Another instance where foreclosure can move forward is if the homeowner accepts a loss mitigation option, such as a trial modification, but subsequently fails to comply with the terms of that agreement.

Additionally, a servicer may join a foreclosure action initiated by a subordinate lienholder without violating dual tracking rules. While the 120-day pre-foreclosure period generally prevents early action, servicers are still allowed to send early delinquency notices during this time, which may provide information about counseling resources. It is also important to note that if a complete application is received less than 37 days before a scheduled foreclosure sale, the servicer is not necessarily obligated to review it under these specific rules, though other regulations might still require consideration.