CFPB Weighs In on Zombie Foreclosures

by San Antonio Attorney

The Consumer Financial Protection Bureau (CFPB) is raising a new, major issue called “zombie foreclosure”. It is a kind of foreclosure that is commenced, and then the borrowers either leave the property before getting or as soon as they get the notice. After this, the servicer stops foreclosure and the loan is charged off because of various reasons, like code violations or property value. The borrower is not notified that the loan has been charged off, the foreclosure has halted, and the property sits unoccupied. Because the loan was charged off, the servicer does not do anything regarding the property.

The borrower, zombie-like, does not know that he or she continually accumulates tax and code violation obligation and actually still owes the unpaid amount on the notice (unless there is a lien release or bankruptcy discharge). The borrower won’t be able to sell or give away the property though they know that the foreclosure has halted thanks to the lien.

The CFPB is attempting to cure the zombie foreclosures using Truth in Lending Act (TILA) which mandate sending of regular statements and notice to borrowers as its recent weapon.  Here’s the issue — as soon as the loan is charged off, the account is probably going to be dormant, which means that there is no more delivery of monthly statements.

The CFPB believes that when the foreclosure is halted, the credit is de-accelerated and therefore the borrowers should receive statements (and notifications) that their liability on the loan still exists. For now, there is still no case law that has yet progressed on this issue, but applying the TILA provision is a way for the bureau to address urban blight cases that may bring on exposure to servicers and lenders.

 

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