CFPB targets ‘zombie’ foreclosures

The Consumer Financial Protection Bureau (CFPB) is participating in several industry-led task forces to try to identify the hundreds of thousands of homes that have been labeled as “zombie foreclosures,” according to Reuters.

Zombie foreclosures result when banks begin a foreclosure – even going so far as to send the homeowners a foreclosure notice – but then abandon it, failing to alert the homeowners, who have often moved out, that they are still responsible for their vacant properties. Reuters revealed that thousands of borrowers across the country are responsible for mortgage debt, code violations and municipal services like water and trash.

The CFPB is now targeting these properties, according to Laurie Maggiano, the CFPB’s servicing and secondary markets program manager. She said, “There is direct borrower harm if a borrower believes a foreclosure on their property has been conducted and they are no longer responsible, and months or years later find out that they are, that there was never a foreclosure and they have large financial responsibilities that they never knew about.”

The CFPB said it has ideas to help resolve the problem, which includes creating a national registry of zombie properties so vacant homes can more quickly be transferred to potential owners and non-profits. The CFPB is also working to create a national definition of “abandonment.”

Though banks and servicers are not technically required to communicate with borrowers about lien releases or charge-offs, an obscure provision of the Truth-in-Lending Act requires that servicers send periodic statements each month to borrowers who have liability for delinquent mortgage debt, the CFPB said.

Maggiano said that provision now is “pushing servicers to release the borrower from liability for the debt.”

“It’s not a technical requirement in our regulations but we consider that to be a responsible communication to borrowers. Servicers are changing their behavior and communicating with borrowers about lien releases,” she added.

Consumer advocates have repeatedly asked the CFPB to address the issue, saying servicers are not complying with certain disclosure requirements to borrowers and anti-blight provisions that require banks to release the lien on a property or complete a foreclosure sale, rather than leaving a property in limbo.