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What is Dual Tracking?

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Question: What is Dual Tracking?
A reader asks: "I heard there is some new law in California that stops lenders from dual tracking, but I don't know what it means, exactly. It has something to do with foreclosures and short sales but, before I call my lender, I want to know what my lender can and cannot do. I don't want to ask the bank about it because they haven't been very helpful with giving me a loan modification. I've been sending over paperwork to the bank for months and trying to work out an agreeable monthly payment, but I seem to be going around in circles. I haven't made a payment for almost 18 months and am getting a little scared. Should I care about dual tracking? What is dual tracking?"
Answer: You are probably referring to a portion of the California Homeowner Bill of Rights that pertains to dual tracking. The Homeowner Bill of Rights started out life as Assembly Bill 278 and Senate Bill 900. It became effective on January 1, 2013 and does not affect every homeowner. Here are other specifications:

  • The property must be located in California.
  • The home must be one to four units.
  • The home must be owner occupied.
  • It does not apply to homeowners who have filed for bankruptcy.
  • It does not apply to homeowners who have signed a deed-in-lieu of foreclosure.
  • People who have contracted with an outside company to extend foreclosure are not covered.

It should be noted that some parts of the California Homeowner Bill of Rights expire on January 1, 2018, and some parts of it are altered slightly at that time.

Dual Tracking During a Short Sale

Several parts of the California Civil Code address dual tracking. The type of dual tracking you are referring to is that which pertains to short sales. Dual tracking means the lender can pursue a foreclosure at the same time it is processing a short sale. Some people think that the law stops a lender from filing a Notice of Default or pursuing a foreclosure while a short sale is under negotiation with the bank. That would be an incorrect assumption. That is not a situation that is exempt from dual tracking. That is wishful thinking.

The bills might have started out that way but that's certainly not how the bill ended up. You will hear a lot of hoopla from REALTOR associations and the Attorney General's office about the significance of stopping dual tracking, but it's a very small part of the process that is stopped and, as such, it protects very few people.

Basically, the bank can't file a Notice of Default or move forward on a trustee's sale once a short sale has been approved and the buyer's proof of funds has been presented to the bank. The problem with this is banks generally postpone a trustee's sale after the short sale approval letter has been generated, so the law doesn't really affect anything or anybody. We need to stop dual tracking when a seller has presented a short sale offer to the bank. This law does not protect sellers in those situations.

Until January 1, 2018, if a seller elects to try to do a short sale and submits all of the required paperwork to the bank, until the time the bank issues its short sale approval, it is free to engage in dual tracking. To foreclose, the bank needs to simply continue on the path it is on and foreclose without ever issuing approval. A seller can wait for months only to lose the home to foreclosure because the seller is not protected from dual tracking.

Dual Tracking During a Loan Modification

There is a bit more protection for homeowners who are pursuing a loan modification than those who are pursuing a short sale. If you want to sell your home as a short sale, it is important to start the short sale process prior to the Notice of Default, just to give you more time to complete the short sale.

However, if you have decided to reaffirm your debt by staying in your home and through hoping to try to lower your payments through a loan modification, then the bank cannot file a Notice of Default while your application for a loan modification is pending. It also protects a seller who is presently performing under the terms and conditions of a loan modification, either temporary or permanent. Previously denied applicants for a loan modification cannot reapply unless the borrowers have had a documented material change in circumstances.

Dual tracking protections stay in place until January 1, 2018. At that time, the dual tracking exemption kicks in when the borrower applies for a short sale or any other type of foreclosure alternative option. Until then, be careful.

The only investor I have noticed who will purposely move forward with foreclosure and not back off has been Fannie Mae. So the short sale dual tracking law will help those sellers who have received short sale approval on a Fannie Mae short sale in which the trustee's sale is moving forward. Generally, Fannie Mae will not postpone a trustee's sale, but under the dual tracking law, once it has issued short sale approval, it cannot foreclose. That's about the only benefit I see.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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