Zombie Mortgages: What You Need to Know (click here for printable PDF)
WHAT IS A ZOMBIE MORTGAGE?
A scary name for a mortgage that you haven’t heard about or made payments on in years!
Most zombie mortgages are the second mortgage in a 80-20 “piggback” loan arrangement. Lenders charge market interest rates for 80% of the mortgage and higher interest rates on the other 20% of the mortgage. The second mortgage may also have non-standard or onerous terms.
Many homeowners don’t realize they have a second mortgage until much later, leading to unexpected debt re-emergence
Zombie mortgages come back to life when debt collectors buy the mortgage from lenders and try to collect the entire balance, including taxes and fees, often after years of no contact with homeowners.
Mortgage buyers will contact homeowners to demand payments, and they will sometimes threaten foreclosure to collect the entire debt amount even after the statute of limitations (6 years) has expired on some or all of the debt.
Typically, debt collectors file foreclosure actions against properties with high equity. Homeowners who have recently discovered they have a zombie mortgage should act quickly!
What to do if you have a zombie mortgage:
- Contact an attorney or housing counselor as soon as possible.
- Determine when was the last time you paid – some of the loan debt may be discharged based on the statute of limitations.
- Speak with a legal professional about loan modifications, short payoffs, and other workout options.
- Consider filing for Chapter 13 bankruptcy.
- Get familiar with The Fair Debt Collection Practices Act – protects against abusive debt collection practices.
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