Navigating Dual Tracking in Foreclosure: Understanding Your Rights and Options

Navigating Dual Tracking in Foreclosure: Understanding Your Rights and Options

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If a homeowner is having trouble meeting their mortgage obligations, they have the option in many cases to work out an arrangement with the lender. Such a modification could result in the lender agreeing to change the terms of the loan to provide financial relief to the borrower, allowing them to avoid foreclosure.

In many states, negotiations toward a loan modification can occur even after a lender has begun to foreclose on a home. Thanks to a federal law, borrowers can rest easy knowing that the foreclosure process must pause while the lender is considering a loan modification.

During the mortgage crisis, many mortgage services practiced what’s known as dual tracking. This meant they would continue to let a foreclosure case proceed while homeowners were also seeking to modify their loans.

Dual tracking unfortunately resulted in many borrowers being shocked to learn they were losing their homes to foreclosure when all along they had believed they were working toward a modification of their loan.

The federal government deemed this to be an unfair practice, though, since banks hold all the cards in this case. They can decide how long it takes to review and approach an application for a loan modification, as the foreclosure process in court gets streamlined for the banks’ benefit. 

That’s no longer the case any more, thankfully. Below, we’ll discuss dual tracking in foreclosure, as well as what rights and options that homeowners have.

Laws and Regulations

There was a lot of uncertainty and turmoil in the immediate aftermath of the 2008 financial crisis, and many homeowners lost their homes to foreclosure in the process. Lenders — many of whom were to blame for the crisis thanks to subprime lending — took advantage of borrowers by continuing to foreclose on homes while also working out loan modifications.

In 2010, the federal government took action to protect borrowers by passing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Consumer Financial Protection Bureau, or CFPB, was created by that act, and it issued new rules for mortgage servicing that prohibited the practice of dual tracking.

Those rules were eventually codified into federal law and went into effect in early 2014.

There are many protections that the new rules put into place. In addition to completely prohibiting the practice of dual tracking, they also included a requirement that servicers couldn’t initiate foreclosure proceedings until a browser was more than 120 days delinquent on their loan.

Some states have ensured that these rules will permanently remain in place, even if the federal government decides to change course in the future. For instance, Minnesota, Nevada and California all have laws on the books that ban dual tracking.

The laws require all mortgage services to either deny or grant an application for a first-lien loss mitigation application before they begin or re-start the foreclosure process.

Your Rights in the Foreclosure Process

Even if your loan servicer is foreclosing on your home, you still have rights under federal law. This includes protection from dual tracking, whether you live in a state that has its own laws on the books or not.

According to federal law, once you submit a complete loan modification application to your mortgage servicing company, the foreclosure process has to be halted completely until the servicer completely reviews the application.

As long as the loan modification application is submitted at least 37 days before the scheduled foreclosure sale, the servicer must stop the foreclosure process entirely, according to the 2014 CFPB rule.

Mortgage Servicers’ Responsibilities

Mortgage servicers have certain responsibilities that they must abide by according to the dual tracking prevention law. Once the borrower submits the complete application for loss mitigation and the application is determined to be in pending status, then the foreclosure process must stop.

The servicer can’t claim that an application is duplicative if a prior application was denied by a prior mortgage servicer. That’s because the CFPB has determined that a transferee service has to comply with the requirements of the law, regardless of whether the prior servicer already evaluated a borrower for loss mitigation options.

A servicer can only proceed with the foreclosure process once again if they have determined the borrower isn’t eligible for loss mitigation, and any subsequent appeals have been exhausted; if the borrower rejects the option that the service offers them; or the borrower accepts an option but doesn’t comply with the deal’s terms.

Likewise, borrowers are prohibited from abusing this system by filing continuous applications for loss mitigation resolutions, just so that they might stall the foreclosure process.

Defending Against Foreclosure

If your mortgage servicer engages in dual tracking, you will have a solid case to defend yourself in the foreclosure proceedings. With the help of an experienced foreclosure law firm such as Babi Legal Group, you should immediately move to dismiss the foreclosure proceedings.

In many states, this must be done via a motion that will bring all valid foreclosure defenses to the court’s attention. Once such a motion is filed, the court will set a hearing on the matter to judge the defenses based on its merits.

Defending against foreclosure isn’t your only option, though. You can seek alternative solutions such as a second mortgage loan, which can be used to refinance your current mortgage with more favorable terms.

Second mortgages, such as home equity lines of credit (HELOCs) and home equity loans, can also be used to fund renovation projects or even pay off other high-interest debts such as credit cards. Keep in mind, though, that interest rates on second mortgages are typically higher than that on primary mortgages.

Taking Action to Navigate Dual Tracking in Foreclosure

Navigating the foreclosure process is never a simple task. It becomes even more complicated if you’re attempting to obtain a loan modification.

All homeowners should know the regulations and laws that restrict dual tracking in foreclosures, including both federal- and state-level regulations. If you’re facing foreclosure, make sure to clearly and consistently communicate with your mortgage servicer and keep clean records of all your interactions. 

If you believe that your mortgage service is dual tracking your loss mitigation application and foreclosure, make sure you talk to an experienced foreclosure attorney. They can help you understand your rights and fight for you if indeed your servicer is breaking any laws.

Another option is to seek help from a housing counselor who is approved by the U.S. Department of Housing and Urban Development (HUD) to prepare a loss mitigation application and learn about other options to avoid foreclosure.

The important thing for homeowners to do is seek professional assistance if you believe that dual tracking is occurring.

Understanding Equitable Subrogation in Foreclosure: Your Rights and Options

Understanding Equitable Subrogation in Foreclosure: Your Rights and Options

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Equitable subrogation is a common legal practice that’s carried out in the real estate and insurance sectors a lot. The legal doctrine allows one party to replace another party, asserting the remedies and rights of that other party in the process.

In real estate, equitable subrogation is often put into practice when a borrower refinances their mortgage. In this case, the new lender will extend credit to the borrower that acts as the new mortgage.

To assume the position of first priority lien holder on the property, the new lender will pay the original lender the amount of money that’s owed on that loan. Through the doctrine of equitable subrogation, this will relieve the original lender of its lien holder rights, giving them to the new lender.

Equitable subrogation also differs from traditional subrogation. That’s because instead of the remedy being contractual, it’s equitable — meaning one debt is replaced by another.

Below, we’ll discuss equitable subrogation in more depth, including how it pertains to foreclosure and how you can protect your assets in the process.

The Role of the Insurance Company in Equitable Subrogation

Insurance companies exercise subrogation rights quite often, specifically when they are settling claims. Insurance companies have the right to exercise subrogation rights so they can gain reimbursement for payments that are made to policyholders.

An example would be if a driver got into an accident that wasn’t their fault and was injured in the process. That driver’s insurance company might be contractually obligated to provide coverage for the driver, helping them to pay medical bills associated with their injury — in addition to the amount they have to pay for any damage done to the car.

The money that the insurance company has to pay is considered their loss. Through equitable subrogation, the insurance company might have the right to reclaim that loss from the other driver’s insurance company — since that person was at fault for the accident.

Of course, this example doesn’t apply to all cases across the board. Some states are considered no-fault states for auto accidents, which essentially wipes out the ability of insurance companies to exercise equitable subrogation in this way.

Policyholders may also be affected by the insurance company exercising subrogation rights, as it could impact their own interests in a property.

Equitable Subrogation in Foreclosure Cases

Equitable subrogation can also come into play in real estate in some foreclosure cases where there are multiple lien holders on a single property, and it can have large ramifications on distribution once a foreclosure sale has been completed.

Sometimes, a senior lender will pay off a junior mortgage on the property, and then seek to be subrogated to the position of the junior mortgage. This would allow them to pursue a claim on the outstanding balance owed by the borrower and, ultimately, try to foreclose on the property to obtain its money.

By pursuing equitable subrogation, lenders can seek to obtain reimbursement for payments they made on the outstanding debt. 

At the same time, borrowers typically have options and rights to negotiate with lenders to avoid the foreclosure process altogether. However, this can be a complicated process.

That’s why if you’re facing the possibility of foreclosure, it’s important to have an experienced attorney on your side.

Proving Negligence of a Third Party

Equitable subrogation is meant to be a fair process, hence the name “equitable.” It’s possible, though, that one party may try to prove negligence by a third party.

The rules of how this must be done vary by state. Generally speaking, though, one has to show that a third party was responsible for the loss, which could include demonstrating clearly that they were primarily liable for whatever the loss was.

The party claiming negligence will have to back up their claims with proof by providing documentation such as insurance policies, contracts or other records that show the third party holds liability.

Understanding Subrogation Clauses in Insurance Contracts

Many insurance contracts will have subrogation clauses written right into them. These provisions will give the insurance company the right to pursue claims against third parties.

In essence, these clauses enable the insurer to get a reimbursement for any payments they must make to policyholders, if a third party was responsible for that loss — as mentioned in the example above.

These clauses can impact equitable subrogation, in that they can ultimately limit the insurance company’s right to pursue a claim against a third party. They could also affect the rights of both the third parties and policyholders alike.

Defenses and Waivers of Subrogation

It’s also common that defendants argue that equitable subrogation clauses cannot, or should not, be enforced in their case. There are many different angles they may take to defend their position.

One is that there was a lack of consideration given to their own claims, or that there isn’t a clear or direct relationship between the parties in the case. They also might argue that the subrogation clause is either unenforceable or ambiguous.

Again, depending on the state and how the subrogation clauses are written, it’s possible that defendants could be successful in this vein, if the insurer didn’t meet certain standards or requirements.

Waivers of subrogation could also affect the rights of equitable subrogation by limiting the ability of an insurance company to pursue a claim. In other words, there could be a limit to how much money, or a percentage, of the loss they are allowed to pursue using equitable subrogation.

Legal Framework for Equitable Subrogation

Case law in Florida has established the requirements for equitable subrogation. It has been established through the state court system as a fair remedy that ensures no lender is injured when they lend money to either businesses or individuals.

Equitable distribution has been used in Florida for disputes over real estate, in Land Bank of Columbia v. Godwin; over insurance; and over construction, in See Tank Tech, Inc. v. valley Tank Testing, LLC.

Florida’s legal framework for cases involving equitable subrogation could also impact other cases’ outcomes that involve both insurance and foreclosure claims. They could also affect the options and rights that insurance companies, lenders and homeowners have.

Seeking Professional Help

Equitable subrogation is certainly not a simple concept. Not only is it complex, but it can be up to interpretation.

That’s why if you’re facing foreclosure and/or an equitable subrogation case, it’s important that you consult with an attorney who has years of experience in these fields. This attorney can help you navigate the complex legal issues that are involved in cases with equitable subrogation.

Lenders, homeowners and policyholders all have options and rights in equitable subrogation cases, which an attorney can help guide you on. They’re also experienced in negotiating these claims with insurance companies or pursuing claims against third parties.

Common Misconceptions

There are many common misconceptions involving equitable subrogation.

One is that it’s the same as conventional subrogation. A main difference between the two is that equitable subrogation as a remedy for a particular debt can’t be legally enforced but should be recognized. 

Another common misconception is that waivers of subrogation always are enforceable. Depending on how the waiver clause is written, and what state it applies to, it’s possible that it may not be enforceable, providing a loophole for defendants.

Frequently Asked Questions about the Process

What is the difference between equitable subrogation and conventional subrogation?

Equitable subrogation is referred to as legal subrogation, while conventional is referred to as contractual subrogation. The latter is based upon a contract between two parties, while the former doesn’t require such an agreement.

How does equitable subrogation affect policyholders and third parties?

Equitable subrogation could allow an insurance company to “step into the shoes of the policyholder,” assuming their rights in the process. Third parties may also have to pay compensation to cover losses an insurance company incurs.

What are the requirements for proving a case of equitable subrogation?

There are five conditions an equitable subrogation case must meet. The subrogee must be paid the full debt, the subrogee has to pay the original claimholder so their own interests are protected, the subrogee can’t act as a volunteer, the subrogation can’t harm any third parties’ rights, and the subrogee can’t be primarily liable for the debt in question.

Get Legal Help if You’re Facing Foreclosure

Equitable subrogation is a legal doctrine allowing a party to “step into the shoes” of another party so they can assert remedies and rights of that other party. Unlike conventional subrogation, it’s not based on a contract, and can arise at times in foreclosure cases.

Since equitable subrogation is such a nuanced and complex legal concept, careful consideration is required for the options and rights of all the parties involved. That’s why if you find yourself in such a case, it’s important to consult with an attorney who is experienced in foreclosure law and equitable subrogation.

Doing so will ensure that your rights and options are protected, and that you know how to navigate equitable subrogation in foreclosure cases.