Not so Fast, Say Courts. Foreclosures not Permitted When Homeowners are Applying for a Loan Modifica
It seems intuitively unfair to most people that a servicer should not hold out the option of help while at the same time trying to take someone’s house. Courts have called this “dual tracking.”
But state and federal law are just catching up with the concept, making it illegal for a mortgage servicer to foreclose while the account is under review for a loan modification.
What makes it illegal? Most mortgages contain a statement that a bank’s right to foreclose is subject to “applicable law.” Under regulations issued since the Dodd-Frank Act was passed, the federal Real Estate Settlement Procedures Act — the “applicable law — prohibits servicers from foreclosing until an application for a loan modification has been considered.
The regulations are issued at Title 12 of the Code of Federal Regulations, Section 1024.41. The regulations state that “if a borrower submits a complete loss mitigation application,” then the servicer “shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale.”
Numerous courts in Massachusetts have held that foreclosing on someone’s home while their loan modification application is under review may be illegal.
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