Can an Arkansas Lender Foreclose While Modifying Your Loan? (CFPB Dual Tracking Rules)

For years, mortgage lenders engaged in a predatory practice that cost thousands of Arkansas families their homes. A loan servicer would tell a homeowner, "Don't worry, we are reviewing your application for a loan modification to lower your payments." Trusting the bank, the homeowner waited, only to find a foreclosure notice taped to their door in Little Rock, Springdale, or Bentonville. This deceptive practice is known as "dual tracking"-pushing a homeowner toward a foreclosure auction on one track while pretending to help them on another.

Today, powerful federal regulations exist to protect homeowners from this exact scenario. Under the rules enforced by the Consumer Financial Protection Bureau (CFPB), dual tracking is illegal. If your lender violates these rules, you have an absolute defense against foreclosure under Arkansas law. Because loan servicers still frequently "lose" paperwork to skirt these rules, securing a knowledgeable foreclosure defense attorney from our US Lawyer Directory can help you force the bank into compliance.

What is Dual Tracking?

Dual tracking occurs when a mortgage servicer simultaneously proceeds with the foreclosure process while also reviewing a borrower's loss mitigation application (such as a loan modification, short sale, or deed in lieu of foreclosure). Federal law, specifically 12 C.F.R. § 1024.41 of the Real Estate Settlement Procedures Act (RESPA), strictly forbids this. The law forces the servicer to hit the "pause" button on any foreclosure actions once a complete application is in their possession.

The 120-Day Pre-Foreclosure Rule

Before a lender can even initiate the Arkansas 60-day non-judicial foreclosure process, they must comply with the CFPB's 120-day rule. A loan servicer cannot record a Notice of Default with the county clerk until your mortgage obligation is more than 120 days delinquent. This critical four-month window is designed to give you time to submit a complete loss mitigation application before the state foreclosure clock ever begins ticking.

Step-by-Step: Stopping a Foreclosure with Loss Mitigation

To invoke your federal protections, you must follow the correct procedural steps. Sending in partial documents will not trigger the legal shield against dual tracking.

Step 1: Submitting a Complete Modification Application

The law only protects you if your application is deemed "complete." A complete application usually includes a filled-out Request for Mortgage Assistance (RMA) Form, 30 days of recent pay stubs, two months of bank statements, a hardship letter, and your most recent tax returns. If you leave a single signature off the tax transcript form, the servicer will label it "incomplete," and they can legally proceed with the foreclosure.

Step 2: Documenting the Lender's Confirmation

By law, once you submit your documents, the servicer must notify you in writing within 5 days stating whether the application is complete or incomplete. You must save this letter. If the letter confirms the application is complete, the dual tracking protections lock in. The lender cannot schedule an auction or record a Notice of Default until they have officially approved or denied your application and given you a chance to appeal.

Step 3: Recognizing CFPB Violations

If your application is complete but the lender records a Notice of Default anyway, or if they "mysteriously" lose your documents to falsely claim your application was incomplete, they have violated federal law. You should immediately report these violations to the Consumer Financial Protection Bureau and the Arkansas Attorney General's Office Little Rock, which can trigger an investigation.

Step 4: Raising the Defense in Arkansas Circuit Court

Filing a complaint with a government agency takes time, and the foreclosure clock moves fast. To immediately stop the auction, your attorney will file an emergency injunction in your local Arkansas Circuit Court. By presenting the judge with the written proof that you submitted a complete application prior to the foreclosure filing, your attorney uses the CFPB violation as an absolute defense, compelling the judge to halt the sale.

How Much Does it Cost to Fight Dual Tracking?

Fighting a dual-tracking violation requires filing a lawsuit. Court filing fees in an Arkansas Circuit Court generally run between $165 and $200. Retaining a foreclosure defense attorney usually involves a flat fee ranging from $3,000 to $5,000 to draft the injunction and litigate the RESPA violations. However, federal law often allows borrowers to recover attorney fees and statutory damages from the lender if a blatant RESPA violation is proven in court.

Timelines and Application Deadlines

The timing of when you submit your complete application determines your level of protection. If you submit a complete application at least 37 days before a scheduled Arkansas foreclosure auction, the servicer must halt the sale to evaluate your application. If you wait and submit the application 36 days or fewer before the sale, the servicer is not legally required to stop the auction or review your file.

Frequently Asked Questions (FAQ)