Zombie foreclosures occur when a bank starts the foreclosure process but then abandons it and fails to alert the homeowner. Homeowners in zombie foreclosures have often already moved out of their homes, not realizing that the foreclosures were never completed and that they are still responsible for mortgage debts, upkeep and taxes, according to a Reuters report.
Thousands of borrowers across the country are the unwitting owners of zombie homes, Reuters reported. Many of them are oblivious that their mortgage debts and municipal taxes are continuing to pile up.
“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,” said CFPB servicing and secondary markets program manager Laurie Maggiano, speaking at a Federal Reserve Bank of Cleveland conference Tuesday.
The CFPB has received repeated requests from consumer groups to remedy the issue, Reuters reported. Consumer advocates say mortgage servicers aren’t complying with disclosure requirements.
Zombie foreclosures usually occur when low-value properties aren’t worth the bank’s time to foreclose on, Reuters reported. Instead of completing the process, the banks often charge off the foreclosure and walk away.
The Consumer Financial Protection Bureau is keeping an eye on “zombie” foreclosures, which it worries cause “direct borrower harm,” according to a CFPB executive.