Lawmakers in Sacramento decided to vote against a bill that would have stopped “dual track” foreclosures across the state last week. The legislation, SB 729, required lenders to completely evaluate a borrower for a loan modification before they filed the notice of default, which officially begins the foreclosure process.
Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco) have authored this sweeping legislation that was designed to limit dual tracking, which is the practice by mortgage lenders to pursue foreclosure at the same time they request a loan modification.
According to the LA Times, SB 729 would have gone further than any existing anti-foreclosure measure by preventing dual-track foreclosures for all California mortgages. The bill would have required lenders to completely decline a modification before it began the foreclosure proceedings. Had lenders failed to make a definite decision regarding the modification SB 729 would permit the lender to halt or void the foreclosure for up to a year after the sale of the house.
The lending industry has argued that the two-track process allows it to protect its investments. The practice, however, has been under close scrutiny by regulators as well and lawmakers with the on-set of the “robo-signing” scandal, which revealed multiple mistakes in the foreclosure process.
The dual-track foreclosure process has been heavily criticized by borrowers as well as consumer advocates as misleading and un-fair. Complaints arise because while a borrower gets accepted for a loan modification plan, makes payments, and has no significant financial changes can find themselves et foreclosed upon under a dual-track system. This happens sometimes without notice to the borrower. The federal HAMP program has rules that forbid the dual-track practice, however those rules apply only to a HAMP loan modification and there is no penalty if a lender breaks the rule. Banks and federal regulators have recently settled a lawsuit that prevents banks to pursue foreclosure after a they have approved a modification. Unfortunately, the law remains silent regarding the pursuit of foreclosures during consideration of the loan modification.
As a Sacramento Bankrupty Attorney I like to stay apprised of the developments in the law that effect local residents. Many of my clients confronted with the foreclosure issue are more interested in getting definitive answers rather than remain in the uncertain process of foreclosure or modification. If you or someone you know is caught in the rapture of this contentious issue you may want to consider speaking with someone knowledgeable on the subject.