CFPB Pullback Opens Gray Area for Collectors Targeting Old Mortgage Debt

Bloomberg has been investigating “zombie mortgages,” which are old second-home loans in arrears. It reports on a Florida company, ARCPE, that’s scooped up these loans and started collecting on them despite their age. ARCPE is one of many nationwide in this arena.

Most of these loans date back to the turn of the century. If you remember, that was a time when many homeowners took out two mortgages to purchase their homes. You also probably remember the real estate crash of 2008 that led to widespread mortgage defaults.

It got so bad that lenders stopped billing uncollectable debts and even canceled them.

The story now gets interesting, as some collectors snapped up these loans for nickels on the dollar. They then began asking homeowners to make good on the debts, including many years of interest.

Some companies feel that these collections are fair since the people still owe the money. Others are sympathetic to families that are blindsided by old debts they thought were canceled.

CFPB’s Warning — and Its Retreat

The Consumer Financial Protection Bureau (CFPB) said in 2023 that it’s against the law to sue or threaten people over these very old loans. Rohit Chopra, the CFPB director at the time, even said, “Threatening to sue to collect on expired zombie mortgage debt is illegal.”

But Bloomberg found that by 2025, the government had slowed down its investigations. Leadership changes caused many cases to be dropped or delayed. That means collectors are now deciding for themselves how far they can go without breaking the rules.

The government rarely investigates zombie mortgage collections, leaving the door open for debt buyers to cash in on old loans.

Every state has its own laws about how long companies can try to collect on old loans. Some states, including California and Maryland, have passed new rules to stop unfair collection tactics. In other places, the laws are unclear, so companies must be very careful.

Weighing Risk and Reward

Debt collectors looking for a big payoff love these loans despite the regulatory hot water they may find themselves in. Bloomberg found that about 3 out of 4 of ARCPE’s loans made money, often without having to take anyone to court.

But mistakes — like sending the wrong notice or charging the wrong amount — can lead to lawsuits and bad publicity.

Debt collectors are playing the same games with other subprime debts — such as car loans and personal loans. With regulators sitting on their hands, these borrowers face perilous times.

The Road Ahead

Many experts want the CFPB to step up and make the rules clearer. For now, companies have to make sure their paperwork is right, confirm that the debt is still valid, and stay honest with borrowers. Collectors who stay organized and communicate clearly can avoid most problems.

Legal experts caution that a single payment from a borrower can inadvertently reset the statute of limitations, making a previously time-barred debt collectible again.

Collecting zombie debt can turn a profit in spite of the risk. It’s a matter of being reasonable. A slip-up — say a missing document — can sour a good buy.