One day, like any other, you innocently open your mail and receive a letter from some company saying that you owe them a debt, perhaps from a mortgage company from decades ago, threatening foreclosure. But “this was taken care of years ago!” you say to yourself with certainty. You throw the letter out and move on, believing there’s no danger here (whew!). But then a few weeks later there’s another letter, and this one strikes a different tone. This one isn’t just asking you to contact them. This one is aggressive in nature, making demands with directives informing you that your mortgage from 2006 is due now, and that foreclosure is imminent.

Today I’ll be addressing the question “What are zombie mortgages?” and then, towards the end, I’ll be addressing a few questions including how you can avoid a zombie mortgage and what to do if you see evidence of a zombie mortgage.

The term zombie mortgages, which are often just second mortgages that were thought to have been resolved, caught on after the 2008 financial crisis when so many filed for foreclosures, bankruptcies or worked out a deed in lieu of foreclosure. Owner financing became more prevalent too, and properties may have changed names without proper, legal handling.

Sometimes people filed for foreclosure with the belief that their mortgage debt had been forgiven. Maybe they filed for bankruptcy opting for a fresh start. Other times ownership of a debt just vanished, so you had no idea who to send your payments to. Maybe there’s a home equity line that you thought was satisfied when you sold your home twenty years ago, or maybe there was a recording error during the transfer of ownership. These are just a few examples that I’ve heard or read of over the years.

Look, the purchase and sale of real estate, foreclosures, inheritance, and the like are complex processes. Sometimes we hear what we WANT to hear, or maybe we WANT to believe what we’re told, but things aren’t always as they seem. Sometimes monsters are more real than we think. Sometimes the stressors of life almost encourage us to just move on, to leave them buried in the past and we soon forget about them.

But just because you THINK the debt was settled, doesn’t mean that it was. Sometimes owners of old debt, perhaps a former mortgage company, have a lawful right to their money. If they do, they may emerge from the depths, seeking their money years later, like zombies that have risen from a cold, dark, earthen tomb.

Sometimes these old debts are sold off for pennies on the dollar, so the new owners are betting that they’ll get their money sooner or later. Perhaps they’re paying outsourced labor to relentlessly hound you like a zombie for years and years, potentially placing liens on your assets.

Are zombie mortgages a thing of the past?

With the historically low pandemic-era interest rates and rising home equity levels, the popularity of the home equity line has rebounded. The home equity line, or loan, is usually a second mortgage that allows homeowners to tap into their home equity. As such, I do not believe these zombie mortgages are forever dead.

As long as there’s a mortgage, there is the potential of a zombie mortgage. I believe there are plenty of them just waiting to come up from their graves as interest rates rise and homeowners have difficulty making payments on these second mortgages when hardships arise.

How to avoid a zombie mortgage?

So, how can you avoid a zombie mortgage? Ensure you use a reputable title company, or lawyer, depending on what state you ‘re in. I’m sure your Uncle Ted is a great guy and has been doing this stuff for years and has all kinds of knowledge of all things real estate. But things change, and if Uncle Ted isn’t knowledgeable of all the legal jargon and procedures to properly transfer title, it could lead to your financial ruin long after Uncle Ted is dead and gone.

Keep your old records. I know that it can be burdensome, but just keeping the basics of a transaction could save you from future zombie mortgages. If you don’t know where to pay a mortgage and are unable to find answers, set up a separate account and set that money aside. That way, if a zombie does appear, you’ll be able to stare him down with confidence and watch him flee.

What to do if you see a Zombie?

So, what should you do if you receive a letter about a zombie mortgage? Like seeing any Zombie, don’t ignore it. I get it. Zombies are scary. They move slowly and they relentlessly keep coming, but you must deal with them. Ignoring the claim of a zombie mortgage could be the very worst thing you could do.

Be certain that it’s not a scam though. Be sure there’s some sort of reason for you to believe it’s legitimacy. Verify the claim. Perhaps ask for something in writing with evidence of the debt, do a google search on the company making the claim, maybe call them back and see if they even answer the phone.

Give it the smell test. Scams often have…a sort of odor to them. Something usually feels just a little off. There are all sorts of scams out there, so don’t just go writing checks to pay someone just because they say you owe them thinking it will solve all your problems.

Your first step should be to contact an attorney for legal advice. I am NOT an attorney and do not provide legal advice. Can I recommend an attorney here in Central Florida where I help consumers buy and sell homes? Yes, I surely can. But either way, you should consult an attorney first.

Gather the documentation for your situation and share it with your attorney. A good attorney will want to start with the facts, and your documentation is a great starting point. They’ll likely start by verifying that the claimant is entitled to their money. Maybe they’ll suggest a “quiet title action”, negotiating a payoff, or some other means of a settlement.

The owner of that zombie mortgage will want their money, so they may be willing to settle. Maybe that attorney can get that debt released, or maybe even prove it’s not a legitimate debt. Surviving an attack from a zombie mortgage is possible, but you’ve got to take action.

If you have Real Estate needs, give me a call. I’d be happy to help.

Published on December 26. 2024 / no comments.