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AG sees $10M in relief in Franklin “zombie mortgage” settlement Serving Families Throughout Massachusetts and Connecticut
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BOSTON (SHNS) – Mortgage servicer Franklin Credit Management Corporation will cease collecting more than $10 million in mortgage debt in Massachusetts as part of a settlement agreement with Attorney General Andrea Campbell, officials announced Thursday.

Campbell’s office said it struck a “precedent-setting settlement” to resolve allegations that Franklin Credit violated consumer protection laws, in the process effectively relieving hundreds of Bay State borrowers from more than $10 million in debt.

Prosecutors alleged Franklin Credit moved to collect debts on second-lien mortgages in its portfolio after failing to communicate with borrowers or provide statements for years, a practice often known as “zombie second mortgages.” The AG’s office said Franklin Credit also failed to comply with foreclosure-prevention measures.

“Zombie second mortgages are ancient debts that servicers quietly sit on for years before attempting to collect on them. This unfair and harmful practice blindsides consumers, often putting them at new risk of losing their homes,” Campbell said in a statement. “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.”

In addition to ceasing its debt-collection on Massachusetts mortgages, Franklin Credit also agreed to pay $300,000 to the state and change its practices on any future mortgage service.

The 19-page settlement agreement with Franklin Credit, a Delaware corporation with a principal place of business in New Jersey, was announced with statements of support from Andrea Bopp Stark of the National Consumer Law Center and Todd Kaplan of Greater Boston Legal Services.

“This settlement marks a groundbreaking step toward ensuring that no Massachusetts homeowner is trapped by a debt they believed was long behind them, and it sends a powerful message to lenders and servicers who appear after years of no communication to foreclose on borrowers’ homes that such practices violate Massachusetts consumer protection laws,” Bopp Stark said.

Franklin Credit denied the allegations, and agreed to the settlement “only in order to avoid the expense and risks of litigation,” according to the agreement.