What Is Zombie Mortgage Debt and Should I Pay It?

Unhappy frustrated couple sitting on couch with cardboard boxes, eviction stock photo

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Old debts really can come back to haunt you. Some homeowners are facing threats of foreclosure actions on their homes for “zombie debt,” or unpaid second mortgages (or loans involving the home as a collateral), that were taken out over a decade ago. AP News reported that the trusts and mortgage servicers taking current action often say the loans were defaulted on years ago.

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Due to confusing loan structures, some of these homeowners weren’t even aware that they had a second mortgage — or believed the loan was rolled into their first mortgage, or forgiven. AP News noted that these homeowners allegedly never received statements for the loans for years, but now the number of foreclosure actions on second mortgages has skyrocketed.

Attorneys say that these loans are now being pursued because of rising property values and increased equity in the home.

“They’ve been holding them, having no communication with the borrowers,” Andrea Bopp Stark, an attorney with the Boston-based National Consumer Law Center, told AP News. “And then all of a sudden they’re coming out of the woodwork and are threatening to foreclose because now there is value in the property. They can foreclose on the property and actually get something after the first mortgages are paid off.”

In New York, AP News reported that 13 plaintiffs in a federal suit are fighting foreclosure action, claiming that this mortgage debt has gone beyond New York’s six-year statute of limitations and violates federal and state law.

Homeowners receiving notices of possible foreclosure action due to zombie debts should be aware of their rights under the Fair Debt Collection Practices Act (FDCP), which states that collectors must validate the debt within 30 days of contact. According to the FDCP, validation includes documentation from the original creditor, the amount owed and the agency’s permission to collect the debt, per BYL Services.

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You can also obtain your most recent credit report to see if the debt is listed there. NBC 7 San Diego also recommends checking if any outstanding debts were settled by asking your title company to run a report to see if your home was ever listed as collateral.

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