According to a Reuters report, a CFPB official, speaking at a Federal Reserve Bank of Cleveland conference last week, stated that the CFPB is beginning to take a close look at abandoned properties and “zombie” foreclosures. The term “zombie foreclosure” refers to a situation in which a borrower has moved out of a home after the lender has started a foreclosure but, because the lender did not complete the foreclosure, title was never officially transferred and remains with the borrower who may be unaware that the foreclosure was never completed. Because the borrower is still the titleholder, the borrower remains responsible for maintaining the home as well as paying taxes and other costs.
Laurie Maggiano, the CFPB’s servicing and secondary markets program manager, is reported to have stated that consumer advocates are pressing the CFPB to address the issue. She is also reported to have stated that the TILA requirement for servicers to send monthly periodic statements to the borrower is pushing servicers to release borrowers from liability for the mortgage debt on properties that are zombie foreclosures. However, Ms. Maggiano is reported to have acknowledged that there is no specific requirement for servicers to notify borrowers about lien releases or charge-offs.
Among the possible CFPB actions reportedly mentioned by Ms. Maggiano were creating a national definition of “abandonment,” hastening the foreclosure process so vacant homes can more quickly be transferred to potential owners and non-profits, and creating a national registry of zombie properties. We would not be surprised to see the CFPB propose amendments to its servicing rules to impose specific notice and other requirements in an effort to create uniform minimum levels of protection for borrowers.