Share this article!

Massachusetts Attorney General Andrea Joy Campbell announced a settlement with mortgage servicer Franklin Credit Management Corporation that resolves allegations that the company violated state consumer protection laws by improperly attempting to collect on debts in its portfolio of primarily second-lien mortgages after failing to communicate with borrowers or provide required statements for many years.

The loans in question were so-called “zombie second mortgages” that were mostly originated prior to the financial crisis of the late 2000s and allegedly experienced years of silence from mortgage servicers before collections resumed or foreclosure processes. The company was also accused of not sending required “35B” notices, preventing borrowers from obtaining assistance until their unpaid balance was too large to allow a successful modification of the loan, and of failing to take required steps to respond to and assist borrowers – in some instances, borrowers were unlawfully charged up-front payments as a prerequisite to entering a modification.

As part of the settlement, Franklin Credit will cease collecting and attempting to collect the debts of its entire Massachusetts mortgage loan portfolio. The company also will not transfer or sell any of these loans to another entity.

Franklin Credit will also make a monetary payment of $300,000 to the state and change its business practices to comply with state laws if it seeks to service any future mortgages in Massachusetts.

“Zombie second mortgages are ancient debts that servicers quietly sit on for years before attempting to collect on them,” said Campbell. “This unfair and harmful practice blindsides consumers, often putting them at new risk of losing their homes. I am incredibly proud of this settlement, the first of its kind for my office, which sets a precedent that puts mortgage servicers on notice that this unlawful conduct will not be tolerated.”