Update: 12/11/24 see article below from National Consumer Law Center, Inc. “NCLC”:
15 Ways to Fight Foreclosure of Zombie Second Mortgages
Introduction: Zombie mortgages, particularly “zombie second mortgages,” are a troubling phenomenon where old, seemingly resolved mortgage debts resurface, catching homeowners off guard. These debts, thought to be forgiven or satisfied, are often sold to debt collectors, who seek to collect on them years later.
What Are Zombie Second Mortgages?
Before the 2008 financial crisis, it was common for borrowers to have two mortgages on the same property. The second mortgage may have been used for the downpayment on the property. Due to the depreciation of the housing market, many lenders stopped communicating, and homeowners forgot about the second mortgage, which is frequently a home equity loan. The homeowner may even believe the second mortgage has been forgiven. Years later, debt collectors purchase these dormant debts for pennies on the dollar and pursue collection aggressively.
Impact on Homeowners
The reemergence of zombie second mortgages can have severe consequences, including:
- Unexpected Debt: Homeowners face demands for outstanding balances, fees, and interest.
- Credit Damage: The old debt can negatively affect credit scores.
- Legal Challenges: Debt collectors may threaten foreclosure or other legal actions.
Preventative Measures
Homeowners can protect themselves by:
- Monitoring Mortgage Status: Regularly check for any updates or claims on existing mortgages.
- Communicating with Lenders: Ensure that any changes in the mortgage status are well-documented.
- Seeking Legal Advice: If debt collectors approach you, speak with a legal professional to learn about your rights and options.
Conclusion
Zombie second mortgages are a hidden threat that can cause significant financial and legal difficulties. Homeowners must stay vigilant and proactive to avoid the unexpected consequences of these reawakened debts.
For more information, visit the Consumer Financial Protection Bureau’s page on zombie second mortgages.
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
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