I hear that some people in foreclosure are seeking loan modification with their lenders. In some cases, I've been given to understand, the lender appears to be playing ball with the idea of modifying the loan. But, the home owner is on a "dual track" and the whole thing is a smoke screen and the home owner is going to get a foreclosure notice in the mail eventually in any event.
My question is: how true is this, or is this media hype? Second, in the event it's actually true, how would a loan holder detect this prior to getting legal notices to that effect in the mail some time later?
I don't think this is a "dirty trick" as your title would suggest but just something that can happen when you don't pay your mortgage in order to try and change the terms of a deal that you have already agreed too with said lender.
If you do get your loan modified it is only because your lender was kind enough to let you, and if you get foreclosed on it is only because you didn't pay. I venture to say the lenders do this to keep people from trashing their homes as they have been known to do when they find out they are losing them.
This was much more common about 5 years ago, but Dodd-Frank along with other state and local laws have effectively outlawed this practice. If you are already in foreclosure it needs to be put on hold by the bank if a negotiation for modification begins, or if they are already negotiating a modification with the borrower, a foreclosure can't be initiated until the modification talks are resolved (either approved or denied).
My background: 10 years mortgage servicing experience
You mean that abominable act (Dodd-Frank) did something right? :-)
Good to know.
Brent is right. Because the foreclosure process usually takes such a long time, the lenders would start the process, even if they were trying to work something out with the borrower. But, as Brent said, that practice has been shut down. Unfortunately, as an indirect result, some lenders are less willing to try to work it out and go straight to foreclosure.
@ Scott - Well...kind of. If the lender has a loan modification program, and the borrower meets the criteria, the lender has no choice but to try to work it out. There are no requirements to have one unless you are one of the big 5 but if you have one, you have to consider a borrower and if they qualify and do what they are told to do, the lender must offer it. If they don't they must provide a reason why and must allow the borrower a chance to appeal, assuming something has changed for the borrower that would warrant a second look.
I dont believe the mortgage servicer is ever really trying to screw you over, but they have lots of employees with lack of training and are such large entities that they suffer from huge case of right hand not communicating with the left hand.
As far as "Dual Tracking" is concerned that is definitely still happening, maybe not purposely. Dual Tracking is a Homeowners bill of rights violation. Until you have actually completed the package and the account has been sent to underwriting for a decision the mortgage servicer can move forward with the foreclosure process. Every servicer is different and some will place a hold when you begin to work on completing the Modification package, others will require you to have a complete package and in underwriting review before they will consider placing a hold.
I do not believe that recording a NOD , or NOTS during the document collection phase of a modification is considered Dual tracking. If you have submitted a complete modification package and are in Underwriting review when the NOD or NOTS is recorded that would be dual tracking. Loan Holder should be diligent and tracking the foreclosure proceedings or get a specialist who will do it for them while assisting in the Modification application.
@ Jorge - I believe you have the gist of the process and agree with your conclusions. I wouldn't waste the time on getting a specialist though. Just my two cents.
@Ron S. Thank you, I agree.
When I first started reading this thread I was thinking that this practice isn't any different than a landlord filing for eviction the second you are late. They will probably pursue an amicable resolution, but because it takes so much time to evict someone it is critical to begin the process as soon as possible. It also ensures that the tenant knows this is real and does not slow roll you. I would think the process is similar for a foreclosure.
So I would imagine because it is such a lengthy process that the lenders want to get it started as quickly as possible. It also let's the borrower know that this is for real. There are cases where borrowers will not deal in good faith if they know there are no consequences, or at least no immediate consequences.
I agree that an unintended consequence of Dodd Frank (or whichever law it is specifically) is that many lenders just won't waste time with loan mods because they can't "dual track" it and would wind up wasting too much time and money playing games. Kind of like the "Passenger Bill of Rights" that won't allow airlines to sit on the tarmac for too long in hopes of getting off the ground. Now they just cancel the flights. Thanks a lot big gov, now I won't be home for Christmas.
Just to clarify it's not just the big 5 that have to qualify borrowers for a mod but any servicer that has signed on to the government administered HAMP program, of which there were about 130 servicers last time I checked. So really it's going to be almost any servicer that has to attempt to qualify a mod prior to initiating a foreclosure, excluding maybe some really small niche companies like hedge funds, credit unions, and what not.
@ Brent - since we are clarifying, I didn't say it only applied to the big 5. I said the big 5 HAVE to have a mod program. Other lenders/servicers have to let you apply for a mod (And not start or continue any foreclosure process during the review) IF (important word) they have a mod program, and it doesn't have to be just those signed up as HAMP participants. If you as a servicer/lender have ANY modification program established, and a borrower requests consideration, they have to be considered. As odd as it may seem, a servicer may legitimately state, "Our investor does not participate in any loan modification programs" if they legitimately don't. As long as they aren't one of the big 5, that could be a true statement and a reason not to offer a mod.
@ Edward - Great analogy and on point.
@Jeff G. This sounds more like a dirty trick perpetrated by the borrowers....stop paying to try to force the bank into a loan modification.
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