CFPB Issues Guidance on ‘Zombie’ Mortgage Illegal Collection Tactics

The Consumer Financial Protection Bureau on Wednesday issued guidance on debt collectors, covered by the Fair Debt Collection Practices Act, threatening to foreclose on homes with mortgages past the statute of limitations.

The Bureau said the advisory opinion clarifies that a covered debt collector who brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt could violate the Fair Debt Collection Practices Act and its implementing regulation.

The advisory opinion comes in light of a series of actions by debt collectors attempting to foreclose on silent second mortgages, also known as zombie mortgages, that consumers thought were satisfied long ago and that may be unenforceable in court. 

“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.”    

The Bureau said debt collectors now attempting to collect on zombie 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 Bureau said it, along with private plaintiffs and state attorneys general have the authority in appropriate circumstances to take action against institutions and individuals violating the Fair Debt Collection Practices Act and Regulation F. The CFPB will monitor the debt collection market for violations related to time-barred mortgages as well as to time-barred non-mortgage debt.