Tag Archives: dual tracking

January Rings in New Federal Laws Protecting Homeowners

ring in the new yearIn early January, a number of new federal rules in the foreclosure and mortgage context became effective. The changes came out of the Dodd–Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) which provided authority to the Consumer Financial Protection Bureau (CFPB) to issue rules to implement the changes. The changes were many; below are just a few of the highlights.

No Dual Tracking

In recent years, dual tracking was a frequent practice among many mortgage lenders and servicers. With dual tracking, a bank would consider a homeowner’s application for a loan modification while simultaneously continuing to foreclose on the homeowner’s home.

A number of states passed laws prohibiting this practice in 2013, and the signatories to the National Mortgage Settlement agreed to stop this practice as well. But even better, as of January 10, 2014, federal law prohibits dual tracking. For details on the new rule, see New Laws Prohibiting Dual Tracking in the Foreclosure Context.

Ability to Pay Standards for Mortgages

In the 2000s, mortgage lenders often approved loans without running numbers or inquiring into whether the homeowner could actually afford the mortgage. Lenders signed people up for mortgages with “teaser rates” that later increased dramatically or low rate loans that had a large balloon payments after a few years. The homeowner would inevitably default and lose the home through foreclosure.

The new CFPB rules, which became effective January 10, 2014, require mortgage lenders to consider specific factors and make a good faith determination that the borrower has an ability to repay the loan. The “ability to repay” (ATR) requirements apply to almost all closed-end residential mortgage loans. (A closed-end loan is one that must be repaid by a certain date. Most mortgages are closed-end loans.) However, there are a number of loan types that are exempt from these requirements. For details on what the lenders must do under the new rule, and which loans it does and does not apply to, see New Mortgage Rules on Ability to Pay.

More Protections for Borrowers of High-Cost Home Loans

The Home Ownership and Equity Protection Act (HOEPA) provides protections to borrowers taking out certain types of loans with high interest rates or high fees. The Dodd-Frank Act expanded those protections and the CFPB’s rules implementing those changes became effective on January 10, 2014.

Among other things, the new rules:

  • require lenders offering high cost loans to provide more disclosures to borrowers
  • prohibit lenders from including certain types of onerous loan terms in the loans, like balloon payments, and
  • restricts fees that lenders can charge for these loans.

For details on which loans the new CFPB rule applies to, and what is required and prohibited, see New Protections for High-Cost Mortgages.

Other Mortgage Servicer Requirements

The CFPB implemented a whole host of other rules that protect mortgage holders, people shopping for mortgages, and those facing foreclosure. These new rules require mortgage servicers to:

  • provide monthly billing statements to borrowers (there are exceptions for some types of loans) that include specific information
  • notify borrowers when the interest rate changes on adjustable interest rate loans
  • promptly credit mortgage payments
  • provide alternatives to force placed insurance
  • quickly resolve errors and respond to borrowers’ information requests, and
  • contact any borrower who falls behind in payments.

To get details on these new rules, see Federal Rules Protecting Homeowners With Mortgages.

Strike Two for Wells Fargo, Says 9th Circuit

Second strikeIn its second opinion this summer that involved Wells Fargo and mortgage modifications, the Ninth Circuit ruled that Wells Fargo violated the Equal Credit Opportunity Act (ECOA) when it agreed modify the mortgage of Mr. and Mrs. Schlegel, accepted payments from them under the new agreement, but then pursued foreclosure anyway.

(In the other case this summer, the Ninth Circuit told Wells Fargo that it cannot enter into a trail plan period agreement with a homeowner under the HAMP program, and then fail to live up to its end of the bargain after the homeowner has done his part.  See 9th Circuit Tells Wells Fargo: You Can’t Have Your Cake and Eat it Too.)

Saying Sorry Is Not Enough

In 2010, Wells Fargo and the Schlegels entered into an agreement that modified their mortgage. The Schlegels began making payments in accordance with the new agreement. When the Schlegels received a default notice from Wells Fargo, they contacted the bank. When they got no action, they eventually filed a lawsuit. After receiving the lawsuit, Wells Fargo sent two more default notices. After the fifth notice (and presumably after a lawyer finally read the Shlegels’ complaint), Wells Fargo admitted that the default notices were sent in error.

According to the Ninth Circuit, Wells Fargo’s belated apology was not enough to get it off the hook. Schlegel v. Wells Fargo, No. 11-16816 (9th Cir. July 3, 2013) It ruled that Wells Fargo’s threats to foreclose on the Schlegels violated the modification agreement and therefore also violated the section of the ECOA that prohibits lenders from taking an “adverse action” without providing the consumer with a statement of reasons for taking such action.

(The Schlegels also argued that Wells violated the Federal Fair Debt Collection Practices Act, but the court said that Wells did not qualify as a “debt collector” for purposes of the act.)

Wells Fargo Cannot Rely on Its Own Wrongdoing to Get Out of Liability

Wells Fargo  argued that it didn’t violate the ECOA because it’s threats of foreclosure violated the modification agreement and therefore were unenforceable. Because the threats were unenforceable, said Wells, they didn’t really constitute an adverse action. What???  Yep, that’s what the Ninth Circuit thought too. You can’t rely on the illegality of your actions, said the court, to get out of liability.

Dual-Tracking Now Expressly Prohibited in California

While the Schlegels had to rely on the ECOA in seeking monetary damages for Wells’ egregious actions, getting relief is now more straightforward. The events in the Schlegels case arose in 2010. Since then, the California legislature passed the California Homeowner Bill of Rights, which prohibits a mortgage holder from pursing foreclosure while its considering a loan modification. The new law provides a private right of action (meaning consumers can sue) and allows for monetary damages. (To learn more, see Nolo’s article California Foreclosure Protection: The Homeowner Bill of Rights.)

New California Law Helps Homeowners in Foreclosure

On January 1, 2013 the new California Homeowner Bill of Rights went into effect. One part of this new law protects homeowners in foreclosure from dual-tracking. This means that if you request a loan modification within a certain period of time, your lender (or mortgage servicer) must stop temporarily stop foreclosure proceedings while it considers your application.

What Is Dual-Tracking?

In the past, a lender would sometimes continue to foreclose on a homeowner’s home, even while it was simultaneously considering the homeowner’s application for a loan modification. Because of this practice, called dual-tracking, many homeowners who were in the midst of loan modifications were shocked to lose their homes to foreclosure.

What Does the New California Foreclosure Law Do?

Under the new law, lenders and servicers that receive a complete loan modification application must temporarily stop foreclosure proceedings until it makes a decision on the application.

To learn details about the new prohibition on dual-tracking in California, as well as other provisions of the Homeowner Bill of Rights, see Nolo’s article California Foreclosure Protection: The Homeowner Bill of Rights.

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California Governor Signs Homeowners’ Foreclosure Rights Law

Last week, California Governor Jerry Brown signed into law historic homeowner-rights mortgage legislation that offers some of the country’s strongest borrower protections against bank foreclosure practices. The protections, part of a Homeowner Bill of Rights sponsored by California Attorney General Kamala Harris, include the following:

  • the prohibition of “dual tracking”—banks’ practice of negotiating loan modifications while simultaneously pursuing foreclosures
  • the banning of robo-signing (as well as the creation of a private right of action if banks violate the law under certain conditions; state agencies and private citizens may recover compensation, including damages of up to $50,000, if lenders willfully, intentionally, or recklessly violate the law); and
  • the requirement that lenders assign a single representative for borrowers to work with through the loan modification process.

This overhaul of foreclosure laws doesn’t apply to strategic defaulters (those who can afford to pay their underwater mortgages but choose to walk away) and only offers protection to borrowers who own and occupy their properties of four units or less.

To read the text of the new law, go to the California Legislative Information website and search for bill number SB-900 or AB-278.