FDCPAForeclosureNewsZOMBIE MORTGAGES – What They Are and How They’re Rising From the Dead to Claim Homes

June 10, 2024

Zombie House Zombie Mortgage


Are you a homeowner who thought your second mortgage from 10 or 15 years ago was long forgiven or canceled? Have you recently started receiving collection calls or foreclosure threats related to this “zombie debt” that you assumed was dead and buried? If so, you are not alone.

Thousands of Americans are now facing the nightmarish scenario of companies coming after them for second mortgages they obtained during the housing bubble in the early 2000s. These homeowners often had their loans modified after the 2008 financial crisis and were told by their lenders that the second mortgage would be forgiven or wiped away. But a decade or more later, the loans are coming back to life as zombie mortgages.

What is a Zombie Mortgage?

What exactly is a zombie mortgage? It’s an old home loan that a borrower defaulted on during the foreclosure crisis that has been sold to debt collectors for pennies on the dollar. The debt collectors then attempt to collect the full amount plus years of interest and fees. In many cases, they threaten to foreclose on people’s homes if they don’t pay up.

Here’s how it happens: During the 2000s housing boom, millions of people took out a first mortgage and also a “piggyback” second mortgage to finance their homes with little or no down payment. When the financial crisis hit, home values tanked, and huge numbers of borrowers defaulted. Banks found themselves with an avalanche of delinquent mortgages.

How Zombie Mortgages Come Back to Life

The banks modified many of the first mortgages to more affordable terms for struggling homeowners. However, some told borrowers not to worry about their second mortgage anymore, implying it would be forgiven or wiped out. The homeowners stopped receiving statements and assumed the loan no longer existed.

Fast forward 10-15 years, and these second loans are reappearing as zombie mortgages. They were quietly sold off by the banks to investors and debt collectors, often for as little as 1 penny on the dollar. Equipped with the legal right to collect, the debt companies are now going after borrowers for the full amount of the old loans plus a decade of interest and penalties. Even more frightening, they are threatening to foreclose on people’s homes.

Can They Really Collect on Zombie Mortgages?

Needless to say, this is a terrifying situation for the affected homeowners. Can these companies really collect on debts from so long ago? Can they actually seize your house over an old second mortgage? The answer is more complicated than you might think.

Technically, these zombie mortgages are still legal loans that were never officially forgiven, released, or extinguished. In many cases, the lenders didn’t formally cancel the debt; they just stopped collecting. So legally, the homeowner may still be on the hook if the statute of limitations hasn’t expired.

Dubious Debt Collection Practices

However, many of these debt-collection efforts rely on dubious practices. Incomplete documentation, retroactively inflated fees and interest, and insufficient notification of borrowers are common issues. Some fail to provide proper validation of the debt. The companies are essentially exploiting the murky situation around these old loans to intimidate people into paying.

What to Do if a Zombie Mortgage Haunts You

So what can you do if a zombie mortgage comes back to haunt you? First and foremost, don’t panic, and don’t ignore it. You have rights and defenses as a borrower. Just because a debt collector says you owe money doesn’t make it true or legally enforceable.

Critically, do not make a payment or acknowledge the debt until you verify that it is legitimate. Don’t give out personal information. Get everything in writing and keep detailed notes of your communications. Explain that you dispute the validity of the debt and demand that the collector provide written proof and documentation. If their debt validation is insufficient, you may have grounds to fight back.

Know Your Rights and Protections

Look up your state’s statute of limitations on mortgage debt. If the time has elapsed, inform the collector you are no longer legally obligated to pay. File complaints with your state Attorney General, the CFPB, and the FTC if the collector violates regulations or engages in abusive practices. Cite consumer protection laws like theFair Debt Collection Practices Act (FDCPA) and theTruth in Lending Act.

Often, pushing back against these collectors and asserting your rights will prompt them to give up and move on to an easier target. They don’t want to invest the resources in a lengthy battle. If you show that you know your protections and are prepared to fight, many will run the other way.

When to Bring in Legal Reinforcements

However, if a zombie mortgage holder does attempt to foreclose, that’s the time to bring in heavy artillery in the form of an experienced consumer protection lawyer. With a skilled attorney who focuses on foreclosure defense and debt collection violations in your corner, you can often mount an effective defense. These cases are typically winnable when the full array of consumer protection laws are leveraged.

How Consumer Law Attorneys Can Help

At Consumer Law Attorneys, we are committed to helping homeowners fight back against unfair, deceptive, and abusive zombie mortgage debt collection. We’ve developed a toolkit of powerful legal strategies for stopping these foreclosures in their tracks. Our lawyers are well-versed in the FDCPA, the FCRA, RESPA, TILA, and an arsenal of other consumer regulations that offer protections.

You Do Not Have to Face Zombie Mortgages Alone

Zombie mortgages may be a nightmare, but you don’t have to face them on your own. If you’re being haunted by an old home loan and need help, reach out to us at Consumer Law Attorneys for a free and confidential consultation.

Call 877-241-2200 to speak with one of our skilled and caring consumer protection attorneys. We’ll review your situation, discuss your options, and work toward a solution that restores your peace of mind.



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