On October 23, the New York attorney general announced an assurance of discontinuance with a group of affiliated debt buyers to resolve allegations that they sought time-barred amounts in New York foreclosure actions on long-defaulted second mortgages, which the attorney general called “zombie” mortgages. According to the attorney general, many of the loans were originated before the 2008 financial crisis and went uncollected for years, often after borrowers had modified their primary mortgages. The assurance states that one of the companies acquired more than 3,000 “severely delinquent” New York mortgage loans in February 2019, nearly all of them junior liens. Since 2020, the companies have brought more than 140 foreclosure actions.

The attorney general alleged that in numerous foreclosure complaints, the companies sought the full principal balance plus all interest dating back to the alleged default, with interest in some cases reaching back as far as 12 years. Under New York law, however, the six-year statute of limitations runs separately from each installment’s due date. After Regulation F was amended on November 30, 2021, to clarify that suing or threatening to sue to collect time-barred debt violates the FDCPA (previously covered by InfoBytes here), the companies generally limited their interest demands but continued to seek time-barred principal. The attorney general found that the conduct constituted repeated violations of the FDCPA, New York General Business Law § 349 and the New York Debt Collection Procedures Act, and thus of New York Executive Law § 63(12). The companies neither admitted nor denied the findings.

Under the assurance, the companies must pay $240,000 in penalties to the state within 30 days. They must also provide restitution, which the attorney general said totals more than $242,000, through account credits for borrowers whose loan modifications re-amortized time-barred payments and checks for borrowers who paid time-barred amounts to settle foreclosure actions. Going forward, the companies must stop collecting time-barred debt on the New York loans they hold. Within 30 days, they must remove time-barred principal and interest from their demands in pending foreclosures, and they must move to vacate or amend any judgment based on a sworn statement that time-barred debt is owed.