The Consumer Financial Protection Bureau (CFPB) is reportedly investigating how banks are handling ‘zombie foreclosures‘ – homes in foreclosure that have been vacated by the homeowner before foreclosure proceedings have been completed, and thus are in 'limbo’ – to see if more can be done to address the problem.
According to a Reuters report, Laurie Maggiano, the CFPB's servicing and secondary markets program manager, said during a Federal Reserve Bank of Cleveland conference last week that the bureau is ‘beginning to look very closely at abandoned properties and zombie foreclosures.’
More specifically, the CFPB will be investigating to see if lenders and servicers are properly notifying homeowners who have abandoned their homes that the homeowners are still legally responsible for the properties. That includes general maintenance and upkeep, which becomes an issue if the town or city where the property is located has blight laws on the books, but also ensuring that the property is properly secured and safe – and that there are no squatters living there.
At issue is whether lenders are properly notifying borrowers as to what stage they are at in the foreclosure process – including whether the debt has been written off or whether a foreclosure has actually been completed – by way of their monthly statements.
‘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,’ Maggiano said, as per the Reuters report.
The report doesn't provide any specific examples of how a lender might mislead a homeowner into thinking that their foreclosure is complete.
The CFPB has also joined a task force, led by several industries, which will identify the hundreds of thousands of homes that have become zombie foreclosures, the report states.
It will be interesting to see what, if anything, the CFPB can do about the problem of zombie foreclosures. Very often, lenders have a difficult time tracking down these homeowners in order to notify them of the vacated property's status. This is because homeowners who abandon their properties often go to live with relatives or friends and sometimes do not provide a forwarding address. Very often, they are behind on their bills and are attempting to ‘hide’ from multiple debt collectors. Sometimes when a lender finally does catch up with one of these homeowners, the homeowner is uncooperative.
What is ironic is that the CFPB's primary role is to protect consumers, however, in the case of zombie foreclosures, it is arguably more often the homeowner who is at fault for the situation than it is the lender.
According to the report, the CFPB has some ideas to help address the problem, such as creating a national definition of ‘abandonment,’ hastening the foreclosure process so vacant homes can more quickly liquidated, and creating a national registry of zombie properties.
Some in the mortgage industry may find it ironic that the CFPB is looking to fast track resolution of zombie foreclosures, considering that the bureau's recently enacted mortgage servicing rules have had the opposite effect – by eliminating practices such as dual tracking and providing borrowers with greater legal protections that allow them to remain in their homes longer, many of the bureau's rules have, to date, had the effect of lengthening the foreclosure process as opposed to expediting it.