The Consumer Financial Protection Bureau recently released guidance in order to address a unique crisis that has been plaguing mortgage servicing companies, “zombie mortgages”. Zombie mortgages are mortgages that were foreclosed on but are still lingering on the books of a mortgage company and are still collecting interest payments. For example, in a situation where a borrower has defaulted on their mortgage and the home has been sold in foreclosure, but the mortgage still remains on the books of the lender and continues to generate interest payments.

The CFPB’s new guidance seeks to inform mortgage servicers of their legal and regulatory responsibilities when working with zombie mortgages. This guidance tackles topics such as when servicers can enforce their rights on zombie mortgages, how to abide by state laws for servicing, and how to handle insurance and tax payments associated with zombie mortgages.

The CFPB’s guidance makes it clear that servicers should take steps to protect consumers with zombie mortgages, and it also outlines the corrective action servicers should take in order to comply with the applicable laws and regulations. For example, the guidance recommends that servicers should keep comprehensive records of their activities related to zombie mortgages, including information related to payment processing, collection and repayment histories, and tax payments. The CFPB also suggests that servicers should put in place an ombudsman to ensure that there are no violations of the law or regulatory requirements.

The CFPB’s guidance on zombie mortgages is an important step in protecting consumers who may be facing financial difficulties caused by foreclosure. The guidance also provides a framework through which mortgage servicers can ensure they are complying with all applicable laws and regulations, while minimizing their risk of civil liability from questionable practices. It is expected that this guidance will help servicers better protect their customers, as well as their own businesses, from the long-term effects of zombie mortgages.

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