Massachusetts Attorney General Andrea Joy Campbell has reached an agreement with Franklin Credit Management, a mortgage servicer, to resolve allegations of improper debt collection practices in The Bay State. The company was accused of violating consumer protection laws by attempting to collect on old debts tied to second-lien mortgages without proper communication or adherence to foreclosure-prevention measures. It will stop collecting on $10 million worth of mortgages and pay a $300,000 fine to settle the enforcement action.
Why it matters: This settlement is significant as it addresses the issue of “zombie second mortgages,” a term used to describe debts that have remained dormant for years without communication from mortgage servicers. These mortgages often date back to the period before the 2008 financial crisis and involve second loans that homeowners believed were resolved after their primary mortgages were modified or foreclosed.
- Under the settlement, Franklin Credit will halt all collection efforts on its Massachusetts portfolio of second-lien mortgages. The company will also refrain from transferring or selling these debts, effectively erasing over $10 million in obligations for hundreds of borrowers across the state. Additionally, Franklin Credit will pay $300,000 to the Commonwealth and change its business practices to comply with Massachusetts laws.
Zoom in: Campbell’s office argued that Franklin Credit failed to send required foreclosure-prevention notices to borrowers under Massachusetts law, commonly referred to as “35B” notices. The company allegedly waited until borrowers were financially incapable of modifying their loans before attempting to collect. The company was also accused of unlawfully charging upfront fees as a condition for loan modifications, preventing many borrowers from receiving assistance in time.
