The guide provides a practical explanation of how to identify, and address, dual tracking in New York State mortgage foreclose litigation. The guide applies for New York, but may inspire litigants from other states to ask appropriate questions.
What is "dual tracking"?
"Dual tracking" in a general sense refers to a behavior demonstrated on a nationwide basis by many different lenders. The behavior consists of elliciting a loss mitigation application from the borrower for a purpose of inducing the borrower not to assert the borrower's rights during litigation. For the purpose of New York procedure, at least two main types arise. For the first type, the lender ellicits the the loss mitigation application prior to commencing litigation, and then commences litigation with the application still pending. The borrower, trusting that the bank will approve the application, does not provide a timely answer to the summons and complaint. Under New York law, the borrower may be deemed to have waived all of its affirmative defenses and counterclaims, if the borrower does not serve the answer within 20 days of service of the summons and complaint. For the second type of dual tracking, the litigation has already commenced, and the borrower has already waived rights by defaulting to answer or appear. The lender ellicits a loss mitigation application with a purpose to induce the borrower not to attempt a timely vacatur of the default.
How do you establish "dual tracking" as standard for wrongful conduct which requires some type of remedy?
New York State statutes do not contain the specific language "dual tracking". However, the National Mortgage Settlement lists and defines dual tracking as to five of the biggest banks, and many other banks have separately entered into agreements which define, and prohibit the practice. You can often find copies of these agreements on the internet. The new federal Consumer Protection Finance Bureau promulgates new regulations as we speak which identify, and prohibit, "dual practices". Although a litigant cannot tecnically raise a defense before it has arisen, the prudent litigator will list it as an affirmative defense, so as to avoid all doubt of waiver.
How can use strategically use "dual tracking" in your arguments?
By far, the most important strategic use of the "dual tracking" argument arises in the context of seeking to vacate a default. The argument can go both as to reasonableness of the default, and providing an explanation as to the amount of time which passed after the default before the borrower reacted. The courts are split fairly evenly as to the validity of this defense, and the results are wildly unpredictable. The strength of the argument will depend, in addition to the identity of the judge to whom it is made, based on the existence of representations in written application materials issued on behalf of the bank, as well as the degree to which those representations are false, likely to deceive, and have resulted in deception.
Two other strategic uses for "dual tracking".
Two other strategic uses for "dual tracking" arise to establish bad faith as prohibited in the HAMP guidelines or pursuant to CPLR 3408, which governs mandatory settlement conferences. Best use of the bad faith concept pursuant to the HAMP guidelines entails highlighting violations which resulted in denial of a loss mitigation application in order to induce the bank to reverse its course, and provide an approval. Best use CPLR 3408 bad faith entails creating a credible threat that the court may deny the foreclosure plaintiff an award of interest, forward advances, and late fees, for the time the bank wasted unnecessarily, without an actual intent to provide a loss mitigation solution.
Tactical use of "dual tracking".
Dual tracking occurs in the contexts of banks engaging criminal conduct, in the form of submitting false claims for payment to the government. The banks segment collection, loss mitigation, and foreclosure prosecution tasks into a many different parties, in order to create deniable culpability for each of its agents, whereby the entire transaction can have a fraudulent effect without any single person out front having personal knowledge sufficient to meet the intent requirement for corporate fraud generally. If all the functions occurred in one person, that person would necessarily understand the activities as criminal, and could not proceed. The foreclosure defendant can turn this segmentation against the bank, by elliciting correspondence and discovery responses from different parties, who are not communicating effectively with each other, and which responses that indicate less knowledge than a person in the specific capacity should necessarily have to perform competently, or that contradict other responses. The litigant uses the contradictions to impeach the banks affidavits and business records on the grounds that the bank does not rely on them. If the bank relied on the records, why are there different representations issuing from its agents? Industry standard, and the National Mortgage Settlement, require the lender to provide its attorneys with all of the information necessary to prosecute legimately in the state court, according to applicable state law. If the attorney are not receiving all of the information, the argument would be, the outcome of the litigation will be fraudulent (as separately established upon review of title documents).
Another issue with bad faith arguments
Bad faith arguments often invoke a "totality of the circumstances" standard which means that the dual tracking does not necessarily stand on its own to satisfy the requirement to establish faith, but may count as a contributing facts factor, in light of other bank conduct which together establish bad faith. The courts are split on the issue of whether a borrower's reliance on lender representations is a valid reason for having defaulted, or having waited to vacate a default. The litigant should show the "dual tracking" occurs in a larger context which demonstrates the bank's subjective intent to deceive. Establishing this context is highly fact specific, and you, given the unpredictable nature of results, the litigant should anticipate appeal.
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