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CFPB Launches “Zombie Foreclosure” Probe

Several months after the revelation of so-called “zombie foreclosures,” federal regulators with the Consumer Financial Protection Bureau are launching an inquest into the problem.

Miami foreclosure defense lawyers know this is particularly timely for Florida, as we rank No. 1 for zombie foreclosures, according to a new report by RealtyTrac.

A zombie foreclosure, in case you aren’t familiar, is one in which the bank initiates the foreclosure process – maybe even issues notice of the foreclosure to the homeowner – but then abandons it, failing to tell the homeowner. This results in cases where the homeowner has vacated the property, believing they no longer own the home and have been evicted, when in reality, they do still legally own the home and are responsible for the ongoing mortgage, taxes, maintenance, etc.

At a Federal Reserve Bank conference recently, the CFPB’s servicing manager announced that the agency is beginning to very closely scrutinize this practice by banks. The official noted that such situations result in “direct borrower harm” in cases where the homeowner is led to believe that the home is in foreclosure. Many times, they don’t learn until several months or even years afterward that they were responsible. By that time, they have accrued substantial back taxes and other financial burdens. There have been a large number of these cases where homeowners were left with little choice but to file for bankruptcy.

This is not an isolated phenomenon. Reuters has reported that thousands of borrowers across the country were unwittingly owners of “zombie” properties. When they finally do learn about it, it’s usually through some fluke: The city issues a code violation or they end up receiving notice from the government that they have failed to pay the proper taxes on their property.

The CFPB said they were pressed to take up the issue after receiving a large number of complaints, indicating that mortgage servicers were not doing enough to comply with borrower disclosure mandates. Further, these properties are often known for falling into grave disrepair, contributing to neighborhood blight that brings down everyone’s property values.

Consumer advocates are calling for measures that would crack down on banks and servicers that allow this to occur.

Most of the time, this practice occurs on properties that are considered relatively low-value, and therefore not deemed worth the banks’ time to foreclose upon. Instead, the banks simply write these properties off. In essence, the banks simply walk away – and they’re doing so without impunity, leaving the homeowner with the bill.

RealtyTrac estimates that there have been some 10 million foreclosures since 2006, and about 2 million of those have not come out of the process. Some of those might be occupied by homeowners who are living there for free. Others may have been holed-up in the robo-signing scandal. (You may recall, this was when banks churned out tons of fraudulent documents in order to quickly foreclose on as many homes as they could).

But the rest are believed to be zombies.

In Florida, there are about 55,000 of these properties, which is more than triple what was reported in Illinois – the state with the second-highest number of zombie foreclosures. On average, these homes have been mired in the foreclosure process for about 1,100 days.

Technically, banks and servicers are not legally required to tell borrowers about lien releases or charge-offs. However, there is a provision of the Truth-in-Lending Act that does mandate these entities offer up monthly statements to those homeowners who have liability for delinquent mortgage debt. That isn’t happening in these cases.

If you find out that you are the victim of a zombie foreclosure, there may be a number of remedies available to you. We’re here to help.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.

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