Banks Get Spanked!

Dual Tracking Limited

In the wake of the foreclosure crisis, federal banking regulators have initiated multi-pronged probes into banks’ behavior. Recently, a coalition of federal regulators finally issued settlements with major banks and  home-loan servicers designed to halt their most egregious practices. Here’s one that really astounded me when I first encountered it: dual tracking.

What is Dual Tracking?

What does that mean exactly?  Last year I encountered this nefarious practice several times. In one case, I was sent by a bank to do an interior bpo or interior inspection. Banks typically order several drive-by bpos  on properties where the homeowner has fallen behind in payments. An interior inspection,though, usually means the bank is getting ready to foreclose.  In chatting with the homeowner whom I had called to arrange the inspection, I discovered that, though he had missed a few payments months previous, he thought he was caught up and was negotiating a loan mod with the bank. He had no idea the bank was poised to pounce and take his home.

Why Banks Do It

He is not alone. Many, even most, banks initiate foreclosure proceedings a few months after a homeowner misses payments. The homeowner, meanwhile, may take some time to come to grips with the situation. Once out of denial, the homeowner may attempt to arrange a loan mod or restructure the payments. The two bank departments, loss mitigation and customer service, though, are separate entities and may even be located in separate states.  So, while the homeowner is innocently making up payments to the bank, the foreclosure department is humming along.  Even in cases where the homeowner has made up all the payments or entered a trial loan mod, as I discovered recently, the foreclosure department does not lift the NOD or notice of default allowing it to foreclose. Again, often unbeknwnst to the homeowner, hanging over his head like th sword of Damocles, is this foreclosure threat.

Banks say they are just protecting their asset, the loan’s security, the property, since so many loan mods fail. That may be true, but it seems banks negotiating with homeowners anxious to save their homes ought to at least wait until the loan mods do fail before grabbing the property.  How hypocritical to let the homeowner think the home is safe while all the time the bank is really preparing a foreclosure!

Practice Sort Of Stopped

This practice must now stop according to this long-awaited settlement. Or, sort of. Now, if the homeowner is approved for a trial loan mod, the bank must stop the foreclosure proceedings. Close, but no cigar. The only hope of a complete ban on this practice that homeowners may have is a parallel investigation into banks’ foreclosure processes by a separate coalition of states’ attorneys general and federal agencies, including Treasury, Justice, Housing and the Federal Trade Commission [FTC]. These groups have proposed a regulation prohibiting banks from starting foreclosure if the homeowner has applied for a loan mod. Naturally, as the banks frequently take more than a year to consider a loan mod application, they do not want this to happen.

When the final deal is struck between all these regulating and investigatory groups, let’s hope at a minimum this hypocritical practice is outright banned. In the meantime,  any distressed homeowner should be checking to see if an NOD has been issued on the property and pushing the bank to remove it if  an agreement has been reached.  For anyone in California, call me at 626-641-0346. I would be happy to check for you.

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