CFPB Issues Guidance to Protect Homeowners from Illegal Collection Tactics on Zombie Mortgages

The CFPB release says “It is illegal for debt collectors to sue or threaten to sue to collect debts past the statute of limitations.”

The more subtle message is that Wall Street needs to stop making claims and threats on claims that either never existed or don’t exist anymore. And that is not just about the statute of imtiations. I would go further and say that anyone who uses that approach as a business model belongs in prison.

Consumers don’t know how legal debts are created, managed, serviced, or extinguished. They typically rely entirely on the statements, correspondence, and notes sent to them — even if those notices come on unsigned paper under the letterhead of business names with which they have never done business.

So the CFPB is catching up with an aspect of this and a fine nuance regarding the legal right to make claims or threaten action to collect an alleged debt. This time it is about Zombie mortgages. The success of the business plan depends entirely on convincing the consumer that his/her transaction was a loan, that an obligation was created, and that the instructions in the letter, statement or notice are authentic communications from a legally recognized creditor. In other words, the business plan requires lying to the consumer and convincing them to pay money when none is due, or there is no right to demand the money.

This is like a trip into the twilight zone.

The bottom line is that Wall Street investment banks are using sham conduit intermediaries to “sell” rights to collect on debts. The story is that they have written off the debt and now wish to make the deduction from the tax returns and financial statements. But the truth is stranger. Wall Street indeed sold those rights of collection, but it is not true that they had anything to sell. The CFPB has been inching toward this conclusion for years. It is about time for the SEC and FTC to also jump on board.

WHAT IS A ZOMBIE MORTGAGE?

First, it is not a mortgage, even though there is a mortgage lien recorded in the chain of title. It is not a mortgage because it secures the performance of nothing, and nobody wants to have anything to do with it for various reasons that make it legally toxic to own or even manage.

Second, it has aged to the point where the statute of limitations bars any claim on it. Anyone who expected any payment relating to any transaction with the subject homeowner has been paid off long ago. So there is no debt or loan account, and, therefore, there is no right to enforce it even if someone has a bill of sale. The CFPB noticed that no Bill of Sale ever includes the most standard and essential clause — a warranty of ownership by the seller. So Wall Street created the illusion of “assets” out of thin air and then had the temerity to describe it as “asset-backed.”

This brings us closer to quieting title and forcing the removal of liens that do not secure any obligation.

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Neil F Garfield, MBA, JD, 76, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. THE COMMENTS ON THIS BLOG AND ELSEWHERE ARE BASED ON THE ABILITY OF A HOMEOWNER TO WIN THE CASE NOT MERELY SETTLE IT. OTHER LAWYERS HAVE STRATEGIES DIRECTED AT SETTLEMENT OR MODIFICATION. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.

But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 14 years or more. In addition, although currently rare, it can also result in your homestead being free and clear of any mortgage lien that you contested. (No Guarantee).

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