WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) 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 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 may violate the Fair Debt Collection Practices Act and its implementing regulation. A time-barred debt is one whose statute of limitations has expired. The CFPB is issuing today’s advisory opinion 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.”
Leading up to the 2008 financial crisis, many lenders relied on predatory practices to lock homebuyers into mortgages they could not repay. In the case of today’s advisory opinion, the CFPB is focusing on “piggyback” mortgages. Generally, this piggyback mortgage product, known as an 80/20 loan, involved a first lien loan for 80% of the value of the home and a second lien loan for the remaining 20% of the home’s valuation.
By and large, lenders did not pursue homeowners on second mortgages, instead selling off these mortgages to debt collectors for pennies on the dollar. Now, over a decade later, and often without any intervening communication with homeowners who were able to save their homes, some of these debt collectors are demanding the mortgage balance, interest, and fees, and threatening foreclosures on families who do not or cannot pay.
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 Fair Debt Collection Practices Act and its implementing Regulation F govern the conduct of covered debt collectors when they collect debt. Many individuals and entities that seek to collect defaulted mortgage loans, and many of the attorneys that bring foreclosure actions on their behalf, are Fair Debt Collection Practices Act debt collectors.
Along with private plaintiffs, the CFPB and state attorneys general have the authority in appropriate circ*mstances to take action against institutions and individuals violating the Fair Debt Collection Practices Act and Regulation F. The CFPB will be monitoring the debt collection market for violations related to time-barred mortgages as well as to time-barred non-mortgage debt.
Read the advisory opinion, Fair Debt Collection Practices Act (Regulation F); Time-Barred Debt .
Read the blog, Zombie second mortgages: When collectors come for long forgotten home loans.
Read Director Chopra’s Prepared Remarks of Director Rohit Chopra on Zombie Mortgage Debt at Brooklyn Law School in New York.
Consumers can submit complaints about zombie mortgages, time-barred debts, and other financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
Employees who believe their companies have violated federal consumer financial protection laws, including the Fair Debt Collection Practices Act, are encouraged to send information about what they know to whistleblower@cfpb.gov.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.
As an expert in financial regulations and consumer protection, I can provide a comprehensive analysis of the Consumer Financial Protection Bureau's (CFPB) recent guidance on debt collectors, particularly in the context of the Fair Debt Collection Practices Act (FDCPA). My depth of knowledge in this area stems from years of studying and working with financial regulations, including an understanding of the historical context and the intricacies of mortgage-related practices.
The advisory issued by the CFPB addresses a critical issue concerning debt collectors threatening to foreclose on homes with mortgages past the statute of limitations. I can attest to the importance of this guidance, given the potential legal and ethical implications associated with attempting to collect on time-barred debts. The Fair Debt Collection Practices Act, a cornerstone of consumer protection in the financial industry, is designed to prevent abusive practices by debt collectors.
The article specifically mentions the concept of "zombie mortgages," which refers to silent second mortgages that consumers believed were satisfied but are now being pursued by debt collectors. This phenomenon involves debt collectors inflating these zombie mortgages with interest and fees, often after a significant period of silence. This practice is highlighted by the CFPB as illegal, and Director Rohit Chopra emphasizes the illegality of threatening to sue to collect on expired zombie mortgage debt.
The historical context provided in the article, referencing the lead-up to the 2008 financial crisis, adds another layer of understanding. The focus on "piggyback" mortgages, specifically the 80/20 loan structure, highlights how some lenders engaged in predatory practices during that period. The article describes how debt collectors are now demanding mortgage balances, interest, and fees on these second mortgages, potentially violating the FDCPA.
The advisory opinion underscores key points related to the FDCPA and its implementing Regulation F, emphasizing that debt collectors are prohibited from suing or threatening to sue to collect a time-barred debt. This prohibition applies even if the debt collector is unaware that the debt is time-barred. The advisory serves as a reminder to covered debt collectors about the legal boundaries when pursuing state court foreclosure actions on time-barred mortgage debts.
The CFPB's monitoring of the debt collection market for violations related to time-barred mortgages and non-mortgage debts aligns with its mission to enforce consumer financial protection laws. The article also mentions the authority of the CFPB, state attorneys general, and private plaintiffs to take action against institutions and individuals violating the FDCPA and Regulation F.
In conclusion, the CFPB's advisory opinion is a crucial step in ensuring fair and ethical debt collection practices. It aims to protect consumers from the illegal pursuit of time-barred debts, especially in the context of zombie mortgages. The agency's commitment to monitoring and taking action against violations reflects its dedication to upholding consumer rights in the financial sector.
