When an old, dead mortgage comes back to life, you need a zombie slayer with a briefcase and a business suit.
There is little in life more fully shocking and disorienting than learning that a debt you thought was gone forever has returned to threaten your financial life as you know it. Everyday, this nightmare becomes a reality for thousands of American families.
Whether you’re currently facing this situation or fear that you could be soon, the single most important thing to keep in mind is that you do have legal rights and you can work with a skilled and experienced consumer protection attorney for ZERO money out of pocket.
Keep reading to learn what a zombie mortgage is and how you can fight back. To learn more about the ways that Consumer Justice Law Firm helps consumers battle other kinds of corporate indifference and exploitation, check out our practice areas page.
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What is a Zombie Mortgage?
A zombie mortgage is a mortgage that a homeowner believed was gone, but has surprisingly resurfaced with an unexpected demand for payment. Typically, these mortgages were second mortgages that were issued prior to the real estate and financial crash that happened in 2008.
How Did The Real Estate Crash Impact Mortgages?
Most homeowners caught up in the crash were preyed upon by unscrupulous lenders and unrealistic loan terms that ultimately led to the downfall of the economy on a large scale.
When the economy fell apart, homeowners were left with first and second mortgages on properties that were no longer worth anything close to the amount of money they owed on the mortgages. This is sometimes referred to as “being underwater” on a mortgage- owing way more on the mortgage than the house is even worth.
With this collapse in home value and the economy, mortgage lenders scrambled to lock in repayment, renegotiate loan terms, or push for foreclosure. Because a first mortgage has repayment priority, most lenders who had backed second mortgages understood there was no chance of getting repayment on those loans.
As a result, second mortgage lenders stopped seeking repayment, sold their debts, filed for tax relief on the losses, and seemingly faded off into the sunset.
Surprise! Look Who Just Rose From the Dead- Your Zombie Mortgage!
To everyone’s surprise, homeowners are learning the hard way that these mortgages never actually went away. While homeowners believed that the debts were forgiven or discharged, the debts were just bought and sold by different investment and collection companies, and laid low for a while.
Now that home values are at an all-time high, and home equity is strong, the companies that hold the rights to collect on these zombie mortgages are crawling out of the woodwork to force repayment.
Top 6 Ways Zombie Mortgages Hurt Homeowners
Unfortunately, there are multiple ways that homeowners are being ravaged by the specter of zombie mortgages, but these are the top six:
- Surprise Debt: When 10, 15, or nearly 20 years have passed with you thinking that your second mortgage debt was long buried, but it suddenly pops up out of nowhere and demands payment, it’s an unwelcome surprise. Most people are not capable of absorbing this kind of financial hit.
- The costs of living have increased over time. Your family may have grown and you have kids now that you didn’t have back then. Or you may have kids in college and all of the associated expenses.
- You have planned and organized an entire financial life and allocated money to all of your budget items. But you were not counting on the emergence of this zombie mortgage.
- Foreclosure: One of the worst things about a surprise debt being directly tied to your biggest asset- your house!- is that failure to pay it can result in forced foreclosures. This means the loss of your home and your credit in one dramatic swoop.
- Credit Damage: When your debt suddenly soars, and repayment demands begin, missed payments, unbalanced debt-to-asset ratios, and even reporting errors can pile up. Credit and financial damage can be swift and painful.
- Debt collector Harassment: The holders of these debts want their money and they want it now. Whether a debt collection agency owns the rights to the zombie mortgage or the holder hired by another company to pursue it, most people experience persistent, relentless harassment.
- Home Equity Drop: All that equity you thought you had in your house? It’s way less now that a creditor is claiming the rights to a sizable chunk of it.
- Emotional Distress: A zombie mortgage just crawled out from under a rock to ambush you. Financial hits, foreclosure threats, credit drops, and debt collection harassment all add up to overwhelm, anxiety, and mental health triggers.
Do I Actually Have to Pay a Zombie Mortgage?
The short answer is, yes, most likely you are financially responsible for paying off the principal on the zombie mortgage.
However, it is also true that you most likely are not financially responsible for paying the interest and other fees assessed on the zombie mortgage, which can be quite extreme after 10, 15, or 20 years of lying in wait.
In addition, some state laws take foreclosure off the table for zombie mortgages and some state laws might enable you to challenge the zombie mortgage altogether.
What Are Your Legal Rights With a Zombie Mortgage?
While the Consumer Financial Protection Bureau (CFPB) offers some limited insight on its website, we give you a better scoop here.
Your Legal Rights vs. A Zombie Mortgage
There are very important federal laws that give homeowners avenues for fighting back. While these laws may not entirely remove your obligation to pay, they can significantly clamp down on the level of damage these zombie mortgages inflict.
These laws can help you fight foreclosure, challenge fees, fines, and interest, stop debt collector harassment, and seek compensation from the same companies that are coming after you. (Imagine the pure satisfaction of getting a payout from them.)
The primary laws involved with zombie mortgages are:
- The Truth in Lending Act (TILA): Companies have an obligation to notify you when your mortgage has been sold and shuffled repeatedly and to provide you with accurate, up-to-date information about your repayment obligation.
- TILA also requires that homeowners receive statements regarding their mortgages. Violation of these obligations can mean that those seeking repayment on zombie mortgages lose the right to use foreclosure as a weapon.
- The Real Estate Settlement Procedures Act (RESPA): This is another loan that places notice obligations on the sellers and buyers of second mortgage debts.
- The Fair Debt Collection Practices Act (FDCPA): Debt collectors are sharply limited in how they can engage with consumers about debts that are owed.
- Even if you are obligated to repay part or all of a zombie mortgage (which may not be the case), you have strong legal rights protecting you from being subject to debt collector harassment during the process.
- Best of all, even if a company is just the holder (owner) of your zombie mortgage debt, but is not a collection agency, the FDCPA may still apply if the debt was purchased by that company after the second mortgage went into default.
How Do You Know If You Have a Zombie Mortgage?
As you can probably guess, most people learn about their zombie mortgage for the first time when it shows up. This means receiving out-of-the-blue notices from loan servicers (lenders) or debt collectors, demanding repayment and making threats.
If you had a second mortgage years ago that you believe has been forgiven or discharged, you can check your credit report for evidence to support this. You can also carefully review the terms and notices of any documentation you received at the time.
If you haven’t been officially notified that someone is seeking payment on a zombie mortgage, it is not advisable to take formal steps just to see if one is lurking in your financial profile. There is a chance that your loan really was forgiven or discharged, and without evidence to the contrary, you can just keep moving forward.
However, now that you know about the possibility of a zombie mortgage showing up again, you should make sure to keep any and all communication that you have surrounding the mortgage in question. Hold on to any letters, contracts, emails, tax or municipal documents, etc.
If a zombie mortgage does eventually pop up to terrorize you, you will be prepared with a basic understanding that you do have legal rights, and a file of documentation to confirm that:
- no one kept up with their legal obligation to let you know what was happening with the mortgage
- no one kept up with their legal obligation to let you know that you even still owed the debt
Who Can Help You Battle a Zombie Mortgage?
The National Consumer Law Center (NCLC) provides a thorough resource on ways to fight foreclosure when a zombie mortgage comes knocking at your door. However, while it is a good source of knowledge, it can’t put that knowledge to work for you. But we can.
As proud members of the NCLC and the National Association of Consumer Advocates (NACA), Consumer Justice Law Firm is where people turn to put their rights into practice. You can think of us as your front line defense in the fight against a zombie mortgage nightmare.
Here’s what we do for you-
- Investigate your situation. Review and assess every detail of your financial and credit portfolio as it relates to this zombie mortgage.
- Explain your rights. Identify the relevant laws, if any, that are being violated by mortgage holders, debt collectors, and more. We explain precisely which rights you have and which rights are being violated. Then we map out a solid legal action plan for fighting back.
- Provide legal advice. Offer direct, personalized guidance through the process of disputing unwarranted interest and fees, fixing reporting errors, fighting illegal debt collection tactics, and more. It isn’t just generic online advice, it’s specific legal advice for YOU.
- Prepare documents. We prepare disputes, documents, and communications on your behalf. We don’t just tell you what needs to be drafted or submitted, we do it for you.
- Handle debt collectors. Once you’re represented by one of our lawyers, the debt collectors MUST direct all communications to your lawyer.
- File a lawsuit. When any of your legally protected rights have been violated by any of the lenders, mortgage holders, or debt collectors involved, we take prompt legal action to hold them accountable.
- Get you money. Part of holding companies accountable for how they treat you is demanding that they pay you compensation for the harm they cause. Feeling tortured by the terrible tactics being used against you? You’ll feel a lot better when those same companies have to cut you a check.
We fight off the zombie mortgage, you get some sleep.
Consultations are 100% Free. If we take your case, you pay nothing…zero money…nada…out of pocket. We get paid by the companies we sue when we win. No justice, No fee.