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Proposed California Law Banning Dual Track Foreclosures Dies in Senate Committee

April 29, 2011

As Riverside foreclosure defense lawyers, we believe "dual tracking" of foreclosures -- in which loan servicers start the foreclosure process while also considering a loan modifiction -- creates unnecessary foreclosures that are bad for the entire market as well as individual homeowners. So we were disappointed to see an April 28 article from HousingWire saying that a proposed ban on the practice died in committee in the state Senate. According to the Los Angeles Times, the Banking and Financial Institutions committee failed to pass SB 729 on a 3-3 vote, with Democrat Alex Padilla of Pacoima abstaining. Democrat Darrell Steinberg of Sacramento, who originally introduced the bill, said he intended to introduce the bill again during this legislative session, and the committee planned to reconsider it.

Dual-track foreclosures are criticized by consumer advocates as misleading and unfair to borrowers. Borrowers who are accepted for a loan modification, make payments on time and have no major financial changes can find themselves foreclosed anyway under a dual-track system, sometimes without notice. This can lead to preventable foreclosures or litigation. Rules for the federal HAMP program forbid the practice, but those rules only apply to HAMP modifications, and there are no penalties for breaking them. A recent settlement between large banks and federal regulators would also forbid foreclosures after a modification is approved, although it said nothing about foreclosures during consideration for a loan modification.

SB 729 would have gone further than either measure by forbidding dual-track foreclosures for all California mortgages. It required lenders to say yes or no to a modification before being permitted to start foreclosure proceedings. If they fail to do so, borrowers can sue them to stop or void a foreclosure for up to a year after a sale. It also required lenders to prove they have the right to foreclose -- the issue in the "robo-signing" scandal -- explain denials of modifications in writing and declare in writing that they were complying with the law when they file foreclosures.

Our Yorba Linda foreclosure defense attorneys wonder what Padilla and the three no voters found so objectionable about these provisions. In fact, we don't believe it reflects well on mortgage servicers that it was necessary to include assurances that they are not breaking the law. Because we've worked in foreclosure defense law since 2008, we know this is a widespread problem for California mortgage borrowers. People who have worked very hard and poured a lot of financial resources into saving their homes should have the right to assurance that the bank means what it says -- and they should be able to hold the bank accountable when it goes back on promises. As things stand, homeowners who are dual-tracked must spend yet more money and effort extricating themselves from unnecessary, unfair foreclosures that are no fault of their own.

Based in Anaheim, Howard Law PC helps borrowers all over California mount this kind of fight. Most recently, we've been able to help numerous borrowers who are victims of servicers who break HAMP rules. Under those rules, servicers may not deny a loan modification, or decline to make a temporary modification permanent, without a good reason like a change in income. As with dual-tracking, however, some loan servicers routinely ignore the rules in pursuit of profit. Others break state law by foreclosing without even talking to borrowers about alternatives. Our Oceanside foreclosure defense lawyers hold them legally accountable with lawsuits, whenever necessary, to enforce our clients' rights and stop a pending foreclosure sale.

Howard Law offers free, confidential case evaluations, so you can tell us your story and learn about your rights at no further risk or obligation. For more information, send us an email or call toll-free at 1-800-872-5925.