Consumer Bureau Takes Action to Protect Homeowners from "Zombie Mortgages"

Regulator issues guidance designed to protect consumers from improper foreclosure

The Consumer Financial Protection Bureau (CFPB) is taking action to protect homeowners from foreclosure actions brought on what it calls "zombie mortgages" that are outside the statute of limitations for collection.

The CFPB explains that some debt collectors will attempt to collect on debt that is no longer legally owed to them and will threaten foreclosure action in order to secure a payment from a homeowner.

“Some debt collectors, who sat silent for a decade, are now pursuing homeowners on zombie mortgages inflated with interest and fees,” said CFPB Director Rohit Chopra. “We are making clear that threatening to sue to collect on expired zombie mortgage debt is illegal.”    

Debt collectors now attempting to collect on these zombie second mortgages may be in violation of the Fair Debt Collection Practices Act. The CFPB is issuing this advisory opinion to remind covered debt collectors that:

• The Fair Debt Collection Practices Act and its implementing Regulation F prohibit a debt collector from suing or threatening to sue to collect a time-barred debt.
• The prohibition applies even if the debt collector does not know that the debt is time barred. Accordingly, any debt collector who is covered under the Fair Debt Collection Practices Act and who brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt may violate the law.

The CFPB noted that in addition to action from the Bureau, state attorneys general and private attorneys may bring complaints against a debt collector for violation of the law against collecting on time-barred debt.

Photo byScott WebbonUnsplash