Crafters of the National Mortgage Settlement clearly wanted banks to pause the foreclosure process while in negotiations with homeowners for a loan modification, but the double-dealing is only “restricted” in the lengthy agreement, leaving workarounds for lenders to continue the practice.
Foreclosure defense attorneys cite dozens of cases where homeowners with pending loan modification applications are also finding themselves moving quickly toward a final judgment and foreclosure sale — a procedure known as dual tracking.
West Palm Beach foreclosure defense attorney Paul Krasker said he has 143 clients who are being dual-tracked. He said lenders are outright violating the dual-tracking restrictions, but are also using the complicated rules to legally continue with a foreclosure during the modification process.
“The banks know they can find loopholes in this type of detailed language,” Krasker said. “I assume the banks would not commit to a simple ‘no dual-tracking’ provision and insisted on carving out exceptions.”
The dual-track rules, which are outlined in more than four pages in settlement documents, include time lines for when foreclosures will be put on hold, appeals processes, trial payment periods and expedited review requirements.
There are different rules depending on when the modification is requested and whether the application is considered complete.
Krasker said some bank attorneys interpret the rules to mean they can get a final judgment against a homeowner but not go to sale. In Florida, sale dates are set when a judgment is entered, and with the courts under pressure to move cases, it may not be so simple to get a sale changed.
Also, lenders are ruling applications incomplete for minor reasons, such as checking the wrong box on a tax return transcript request, Krasker said.
“The banks are relying on borrowers to not be able to complete the applications and then the banks notify the borrowers to resubmit after the time deadline passes,” he said. “The worst part is you get banks who come back and say you’re too close to a sale date so we won’t issue a modification.”
Florida Attorney General Pam Bondi scolded Bank of America and Wells Fargo for possible violations of the 2012 settlement this month, including concerns about dual tracking.
In a May letter to Wells Fargo that preceded a meeting with the National Mortgage Settlement monitoring committee, Bondi’s office said homeowners are complaining they are wrongfully referred to foreclosure during the modification process and then charged for attorneys costs and other default-related fees. According to the settlement, a homeowner who is late on payments by 10 months or less, but submits a loan modification application, should not be referred to foreclosure.
Still, the attorney general’s office acknowledges dual tracking is permitted in some circumstances.
“While there are stringent restrictions on dual tracking in the settlement, the settlement does not prohibit it entirely as there are instances when it is appropriate or mandated by the terms of the mortgage and the entity that controls the loan,” wrote Assistant Attorney General Michael Moore in a June 7 letter to Krasker.
Anthony DiMarco, executive vice president and director of government affairs for the Florida Bankers Association, said there could be a disconnect between the loan owner and mortgage servicer — the entity charged with managing the loan on a daily basis.
Servicing guidelines often set timelines for foreclosures that may clash with what’s written in the National Mortgage Settlement.
“You may be trying to help the homeowner, but the servicing agreement says you have to start the process at a certain point, and then everyone just gets inundated — the banks, the law firms, the courts,” DiMarco said. “I think everyone agrees we’d be better off, the homeowner would be better off, the neighborhood would be better off, if they can just stay in their house.”
One of Krasker’s clients, who just hired the firm this month, has been working with his lender on a loan modification since 2011. A final foreclosure judgment was issued against him in October with an Aug. 1 sale date.
But when Krasker raises the National Mortgage Settlement as a defense in court, he said he’s told only the attorney general’s office or the federal government has standing to make that argument.
Consumer advocates fear unrepresented homeowners won’t be able to navigate the dual-tracking guidelines to adequately defend themselves.
“They just have to do their best to let the judge know they are engaged in discussions to modify their loan and that they’re being dual-tracked and hope the judge understands,” said Alice Vickers, an attorney who works on housing issues for the Florida Consumer Action Network. “Dual-tracking has been a problem from the beginning and we feel like we’re not going to see any correction of this behavior.”
Last month, The Palm Beach Post wrote about Stuart homeowner Patricia Gelineau who lost her foreclosure case in an April judgment that set a June 4 sale date for her home. Two weeks after the judgment, she was approved for a loan modification with the first payment due July 1.
Gelineau’s lender canceled the sale after The Post’s story. It has been rescheduled for Sept. 10, which gives Gelineau time to complete her trial loan modification.
“I went from the hearing directly to the bank and made my July 1 payment early, so I can get through the trial period by August and ensure that the permanent modification gets in place before Sept. 10, hopefully,” Gelineau said.
Loan mod rules
There are different rules depending on when a loan modification is requested and whether the application is considered complete.
For example, if a loan modification is completed within 30 days of the borrower being referred to foreclosure, the bank is not supposed to request a foreclosure judgment or sale — the final stage of the foreclosure process in Florida.
If an application is submitted more than 30 days after the foreclosure referral and a request for a final judgment has already been filed, the bank “shall take all reasonable steps to avoid a ruling on such a motion.”