Suing Lenders for Illegal Dual Tracking During Loan Modification in Hawaii
Federal and Hawaii state laws strictly prohibit 'dual tracking'-meaning a bank cannot proceed with a foreclosure auction while your complete loan modification application is under active review. If a lender violates these rules, you can sue them in federal or state court to stop the sale and claim monetary damages.
Falling behind on mortgage payments is terrifying, which is why most homeowners immediately apply for a loan modification to save their home. You submit your tax returns, pay stubs, and hardship letters, and the bank tells you they are reviewing your file. Yet, shockingly, you receive a notice in the mail that your house is scheduled for a foreclosure auction next month. This deceptive and highly stressful practice is known as 'dual tracking.'
For years, banks used dual tracking to string homeowners along with false hope while secretly pushing the foreclosure forward. Fortunately, strict federal and state laws now make this illegal. If your bank is trying to sell your home while evaluating you for loss mitigation, you have powerful legal rights to stop them. We strongly recommend searching our directory for a local Hawaii consumer protection or foreclosure defense attorney to hold your lender accountable.
Understanding the Ban on Dual Tracking
The prohibition against dual tracking is anchored in federal rules enforced by the Consumer Financial Protection Bureau (CFPB). Specifically, under 12 C.F.R. § 1024.41, promulgated pursuant to 12 U.S.C. § 2605, a mortgage servicer cannot make the first notice or filing required for a foreclosure process until the borrower's mortgage loan obligation is more than 120 days delinquent. If a borrower submits a complete loss mitigation application before foreclosure proceedings commence, the servicer must evaluate that application before initiating foreclosure.
Furthermore, if a foreclosure is already underway and you submit a complete application at least 37 days before a scheduled auction, the servicer must immediately halt the foreclosure process. They cannot move for a foreclosure judgment or conduct a sale until they have evaluated your application, informed you of the result, and given you a chance to appeal. Hawaii state law also provides strong protections, including the Mortgage Foreclosure Dispute Resolution program found in Haw. Rev. Stat. § 667-74, which pauses non-judicial foreclosures while the parties attempt mediation.
What to Do if the Bank Schedules an Auction During Modification Review
If you discover an auction date while you are under review, you must act fast. Do not assume the bank will 'fix it' internally. You need to gather written proof of your modification submission-including confirmation emails, fax receipts, and certified mail tracking numbers. Your lawyer will immediately contact the bank's legal counsel demanding they cancel the sale due to a RESPA violation. If the bank refuses, your attorney will file an emergency motion for a Temporary Restraining Order (TRO) or preliminary injunction with the judge to physically stop the auction from happening.
Seeking Injunctions and Damages for RESPA Violations
If the bank violates RESPA's dual tracking rules, you are not just limited to stopping the sale-you can actively sue the bank for damages. By filing a lawsuit in federal court, such as the U.S. District Court for the District of Hawaii, Honolulu, you can seek compensation for actual damages (such as attorney fees, emotional distress, and ruined credit) and statutory damages up to $2,000 per violation if you can prove a pattern of noncompliance.
Your lawyer will typically start this process by submitting Form JS 44, FED, U.S. District Court, Civil Cover Sheet along with a detailed civil complaint outlining exactly when you submitted your complete application and how the bank illegally pushed the foreclosure forward.
How Much Does it Cost to Sue the Lender?
Many homeowners assume they cannot afford to sue a massive bank, but consumer protection laws are designed to help you:
- Fee-Shifting Provisions: Under RESPA, if you win your lawsuit against the lender for dual tracking, the court can order the bank to pay 100% of your attorney's fees. Because of this, many attorneys will take strong RESPA cases on a contingency basis or with very low upfront costs.
- Emergency Injunction Fees: If you need to stop an imminent auction, attorneys may charge a flat emergency fee of $1,500 to $3,500 to rapidly draft and file a Temporary Restraining Order in state or federal court.
- Court Filing Fees: Filing a federal civil lawsuit generally costs $405 under 28 U.S.C. § 1914.
How Long Does the Process Take?
Getting a Temporary Restraining Order to stop an illegal auction happens incredibly fast, often within 24 to 48 hours of filing the emergency motion. Once the auction is stopped, the actual civil lawsuit against the bank for RESPA damages can take 12 to 18 months to reach a settlement or trial. Meanwhile, the bank is forced to properly evaluate your loan modification, which typically takes 30 to 45 days once they acknowledge receipt of a complete package.
Frequently Asked Questions (FAQ)
What counts as a 'complete' loss mitigation application?
An application is 'complete' when the servicer has received all the information they requested from you, such as tax returns, bank statements, and hardship letters. The bank must send you a written notice within 5 days confirming the application is complete.
Can the bank ask for the same documents multiple times?
Banks are notorious for doing this to delay the process. However, under CFPB rules, once they confirm your application is complete in writing, they cannot proceed with foreclosure just because they suddenly 'lost' a document or demand it again.
What if my loan modification is denied?
If the bank legally denies your modification, the dual tracking protections lift, and they can proceed with the foreclosure. However, you have a 14-day window to appeal their decision, during which the foreclosure must remain paused.
Does dual tracking apply to investment properties?
Generally, no. The strong anti-dual tracking protections under RESPA only apply to your principal residence (the home you actually live in). Investment properties or vacation homes in Hawaii do not receive the same federal protections.
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