DUAL TRACKING: HOMEOWNERS SUFFER FORECLOSURES WHILE BANKS LOSE LITTLE

Although homeowners continue to struggle with their mortgage payments and try to avoid foreclosure, many banks see nothing wrong with concurrently pursuing foreclosures against borrowers who are seeking loan modifications. This controversial practice, called dual tracking, seems less like a smart business tactic and more like a way to punish homeowners working to keep their homes. While both federal regulators and various state officials work to curb or ban the practice of dual tracking, consumers should be aware that lenders may sell their homes before modifying their loans.

Practice of Dual Tracking

Some borrowers who are in default on their mortgages want to proactively work with their lenders to try to save their homes, so they seek loan modifications. However, some banks, with or without their borrowers' knowledge, continue to pursue foreclosures against these homeowners, even putting their houses up for sale before the loan modification approval process is complete. While lenders defend this dual tracking method as a way to protect their investments, consumer advocates and regulators feel it misleads homeowners during an already confusing and frustrating time.

Loan Modifications?

Borrowers may still achieve loan modifications, regardless of the dual tracking practice. In 2010, banks completed around 1.24 million proprietary loan modifications. About 513,000 of these loan modifications were done through a governmental modification program. One of the major issues with these numbers, however, is that most modifications are proprietary, so the tracking ban instituted under the Obama administration's foreclosure relief initiative program last year does not apply. In the meantime, homeowners attempting a proprietary loan modification must deal with the complications that dual tracking presents.

Regulator v. State Actions

In April of this year, federal regulators in the banking industry announced they had made several deals with major banks that included improving the process of stopping foreclosures when loan modifications are approved. While these settlements attempted to broach the subject of dual tracking practices, many advocates felt the regulators could have pushed banks harder with reforming the use of this tactic. Currently a coalition that includes state attorneys general and various federal agencies is working to overhaul the foreclosure system and institute a total ban on dual tracking for all banks.

Borrowers Beware

Until the foreclosure system is overhauled, current borrowers in default on their mortgages who are considering applying for loan modifications should beware of the practice of dual tracking. Lenders sometimes make qualifying for loan modifications difficult, or banks have two different departments handling the simultaneous loan modification application and foreclosure process, which creates more opportunities for miscommunication. If you are currently in default on your mortgage and would like to know more about your legal rights and options with regard to loan modifications and foreclosures, contact a local attorney experienced in defending these matters to ensure you are not lost in the dual tracking nightmare.