On April 26, 2023, the CFPB issued an advisory opinion, which reiterated that the FDCPA and Regulation F prohibit certain debt collectors from suing to collect on debt or threatening to foreclose on homes with mortgages past the statute of limitations, or “time-barred” debt. Such guidance is a result of actions by certain debt collectors to foreclose on silent second mortgages, referred to as “zombie mortgages,” that consumers thought had been satisfied and that are likely not enforceable in court.

These zombie mortgages have historically been the result of “piggyback” mortgages, where, as the CFPB explained, a mortgage, known as an 80/20 loan, included 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. In most cases, lenders did not pursue the second mortgages, but often sold them to debt collectors. Now, certain of those debt collectors are turning up without prior notice to demand the mortgage balance, plus interest and fees, and threatening to foreclose when consumers do not pay.

The CFPB notes that it issued the guidance to remind debt collectors closing on the zombie mortgages that the FDCPA and Regulation F prohibit such debt collectors for suing or threatening to sue on zombie mortgages if the debt is time-barred; and such prohibition applies even if the debt collector does not know that the debt is time-barred. CFPB Director Rohit Chopra issued a statement with the advisory opinion, reiterating that the CFPB wants to make it clear that threatening to sue to collect on expired zombie debt is itself illegal.

Putting it into Practice: The CFPB’s advisory opinion highlights the CFPB’s focus on debt collection efforts in violation of the FDCPA, knowingly or not. Debt collectors and creditors generally should be on alert and aware of state and federal collections laws and any statute of limitations that may affect a debt they are seeking to collect.

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