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Dual Tracking: District Court Reviews Borrower’s Claim

Posted By USFN, Thursday, January 18, 2018
Updated: Thursday, January 18, 2018

January 18, 2018

by Ronald S. Deutsch and Michael J. McKeefery
Cohn, Goldberg & Deutsch – USFN Member (District of Columbia)

The U.S. District Court for the District of Maryland recently dealt with the issue of dual tracking in an unreported case, Weisheit v. Rosenberg & Associates, LLC, Civil No. JKB-17-0823 (Nov. 15, 2017).

In Weisheit, the plaintiff’s mortgage became delinquent in 2009 and foreclosure proceedings began on April 26, 2016. The plaintiff-borrower then submitted a “complete” loan modification application to the servicer more than 37 days prior to a scheduled foreclosure sale.

Pursuant to the Real Estate Settlement Practices Act (RESPA) and its implementing regulations, if a “complete” loss mitigation application is submitted to a servicer more than 37 days prior to any scheduled foreclosure sale, a foreclosure servicer may not move for foreclosure judgment or order of sale, or conduct a foreclosure sale. See 12 C.F.R. § 1024.41 (g). If the servicer does so, the servicer is engaging in a prohibited practice known as dual tracking.

The plaintiff-borrower’s loss mitigation application was denied by the servicer via letter. Pursuant to 12 C.F.R. § 1024.41 (h), the plaintiff then timely appealed the servicer’s denial decision. On December 29, 2016 the servicer sent a letter to the plaintiff in response to her appeal (the Response Letter). In the Response Letter, the servicer asserted that the denial was based upon an investor restriction. In the Response Letter, however, the servicer did not name the investor, nor was the specific nature of the alleged investor restriction described. The plaintiff responded and advised the servicer and the foreclosure firm that she intended to appeal the denial. Nevertheless, the plaintiff’s home was rescheduled for sale. As a result, the plaintiff filed an emergency motion to stay the sale, which was granted by the Maryland Circuit Court.

The plaintiff then brought an action against the servicer and the foreclosure firm in federal court. In her lawsuit, the plaintiff primarily alleged that the servicer violated RESPA by proceeding towards a foreclosure sale during active loss mitigation. The servicer moved to dismiss the plaintiff’s complaint; the court denied the motion.

U.S. District Court’s Analysis
The court indicated that, under 12 C.F.R. § 1024.41 (d), a denial of a loan modification application must state the “specific reason or reasons for the servicer’s determination.” Furthermore, according to the Consumer Financial Protection Bureau’s official interpretation, if the denial is due to a restriction by the investor, then the explanation for the denial “must identify the owner or assignee of the mortgage loan and the requirement that is the basis of the denial.” Therefore, the court found that the denial contained in the servicer’s Response Letter was insufficient because the investor was not named, and the specific nature of the alleged investor restriction was not described. According to the court, an insufficient denial such as the Response Letter did not end the loss mitigation process; thus, the servicer was prohibited from moving towards a foreclosure sale.

Ultimately, the court ruled that the plaintiff alleged sufficient facts to state a claim for relief against the servicer for violating RESPA’s prohibition of dual tracking. As a result, the servicer’s motion to dismiss was denied, permitting the plaintiff’s lawsuit to continue.

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