Dual Tracking: Filing For Bankruptcy Even When Your Bank Seems Willing to Modify Your Mortgage


Foreclosure (Photo credit: zane.hollingsworth)

You know you’re in financial trouble, so you’ve tried to do the right thing by negotiating mortgage terms with your bank. You want to be a responsible person and live up to your debt obligations, but if your bank doesn’t agree to the modification, you know that you will lose your home to foreclosure. Luckily, your bank agrees to the modification, and now you don’t have to worry about foreclosure anymore. Right?

Wrong. In fact, the bank might just be “negotiating” your new loan agreement knowing full well that it’s going to begin the foreclosure process anyway. This process, called dual tracking, is a trick that banks and mortgage servicers have used for years. Dual tracking—so-named because the lender pursues two strategies, or tracks, at the same time—occurs when a lender tells a homeowner that they are willing to consider a mortgage modification. While the deal is “pending,” or after the lender agrees to a “trial modification,” the lender moves ahead with the foreclosure process anyway.

Needless to say, this practice has devastated countless homeowners who thought they were doing the right thing.

New Protections

After the financial collapse of 2008, Congress created the Consumer Financial Protection Bureau, or CFBP. The bureau is charged with protecting consumers from unfair, abusive, or misleading practices that lenders use. As part of its powers, the CFBP developed new rules that prevent lenders from promising loan modifications or other options while actually pursuing foreclosures.

That’s great, right? Yes, and no. The rules the CFPB adopted don’t go into effect until January of 2014. Also, even though the new rules allow consumers broader protections, banks might still violate them. Even though consumers can file a complaint with the CFPB and fight the violations in court, this only happens after the consumer has already had to suffer at the hands of the lender. Not only that, but it appears that banks are already trying new strategies that still leave homeowners in the cold while allowing the lender to get around the new protection rules.

Dual Tracking and Bankruptcy

So where does that leave you, the homeowner? The world of mortgages is complicated, immense, and shockingly lopsided in favor of the institutional lenders. Banks, mortgage servicers, and institutional lenders are there to make a profit, and hapless homeowners are often ground up in their gears.

Luckily, bankruptcy is one area of the law that still affords the consumer significant protections. Even if your bank tells you that it is willing to modify your loan, filing for bankruptcy is one of the best things you can do to protect yourself. How? Consider two of the most effective protections bankruptcy affords consumers:

  • Automatic Stay. When you file for bankruptcy your lenders will be prevented from filing a foreclosure. If the bank wants to file a foreclosure, it will have ask the bankruptcy court to allow it to proceed. This can take months, and give you enough breathing room to help you get back on your feet.
  • Modifying Your Mortgage. Filing for bankruptcy might actually let you stay in your home by allowing you and your lenders to enter into a court-ordered loan modification. If, for example, you file for Chapter 13 bankruptcy, you can effectively restructure your debt and modify your loans. If the bankruptcy judge accepts your repayment plan, your creditors have to accept the modification. They also can’t say they’ll accept the modification while dual-tracking your loan for foreclosure.

Bankruptcy, Responsible Borrowers, and Consumer Rights

Deciding to file for bankruptcy is often very difficult for homeowners, and especially so for those who have never faced serious economic hardships in the past. A lot of homeowners have a strong sense of pride about their ability to pay their loans and live up to their obligations. To many, filing for bankruptcy is something that only irresponsible people do.

This is exactly opposite of reality.

Bankruptcy is how consumers level the playing field against institutional lenders. When you file for bankruptcy, you are doing nothing more than affording yourself of the legal protections to which you are entitled. You are doing the responsible thing by doing what is in your best financial and legal interests. You are protecting yourself, your rights, and your ability to live a productive, responsible life.

There’s nothing irresponsible or immoral about bankruptcy. Lenders want to avoid consumer bankruptcy whenever possible because they know that their freedom to take advantage of you stops once the bankruptcy court steps in.

When mortgage lenders decide to dual-track your loan, they’re not looking out for your best interests. They’re doing so because they believe it is in their best interests, and will help them squeeze whatever profit they can out of you. That’s the entire reason they granted you a loan in the first place, and the only reason they pursue dual-tracking.

Not only that, but the legal process is something lenders can easily afford to spend a lot of time and money on. When a bank gets into a legal fight, it’s just a part of the ordinary business day. For you, it’s one of the most difficult periods in your life, and something you wouldn’t wish on your worst enemy.

If you have any concerns about bankruptcy, foreclosure, or are worried that you’re being dual-tracked, you need to talk to an attorney right away. You can call us at 919-313-4636 for a free consultation. The decision to file for bankruptcy is not easy, and you need legal advice to help you determine what is in your best interests.

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Jim White
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Jim White helps people and companies facing serious financial injury by bringing and defending lawsuits and representing debtors in bankruptcy. He has successfully taken on banks, large financial institutions and other corporations in “David v. Goliath” cases. You can reach him at 919-246-4676.