Like ghosts in a haunted house, law firms pursue landowners, threatening to lose their property to unpaid secondary mortgages – “zombie” mortgages. Some people thought their mortgages had been discharged through bankruptcy. Others wanted to pay off their mortgage, but couldn’t because there was nowhere to send their payments when their lenders disappeared during the mortgage crisis a few years ago.
Andy’s story is typical.
2007: Andy turns a house into a small office
“In 2007, I transformed a small house into a commercial structure for our data recovery company. There was a first and a second mortgage, and I’m always up to date on the first, ”he wrote.
“Around 2009, when things collapsed in real estate, the company that served my second just disappeared! I tried to send and even wire the payments, but it all came back. I couldn’t find out who to pay.
“Earlier this year a letter from a Florida law firm came in claiming to represent a company that had bought my second mortgage, stating that I was in default, demanding full payment or they would foreclose and take my office. !
“How can that be? What do you recommend?”
Real estate lawyer explains what happened
I directed Andy’s situation through Hanford, Calif., Real estate attorney Ron Jones who is “a lot more familiar with these situations than I would like because they are terrifying to people who are suddenly at risk of being in danger. lose their home ”.
He explained how and why this is happening, so many years after the Great Recession.
“Zombie secondary mortgages are a thing of the past, haunt homeowners and threaten their ability to stay in their homes or commercial buildings,” Jones says, describing two common situations in which this happens:
Situation # 1: years after bankruptcy
“Many homeowners felt that by including the second mortgage in bankruptcy, they were no longer responsible for it. They keep the first current, but have stopped paying on the second. In reality, the lender still has a lien on the property. Mortgage debt (secured debt) generally cannot be discharged through bankruptcy. You don’t own the house for free and clearly. You are not released from the mortgage.
“So, no payments?” Whoever owns the mortgage has the right to foreclose unless you pay it off or negotiate an acceptable restructuring. “
Situation # 2: the lender is gone and you can’t make payments
“Strange as it sounds, the fact that you couldn’t keep the payments on the second stream doesn’t mean the money isn’t owed. It is due. “
Why is this happening now, all over America?
We can all remember the tsunami of foreclosures and the prices of homes and commercial property that fell from the face of the planet as a result of the crash. With the value of their home falling far below what was owed, many people simply walked away.
“During those years, second mortgage holders didn’t foreclose due to falling home values and low equity in the property,” Jones notes.
“Today, house prices are back to pre-crash levels and in some cases even higher. While a second mortgage had little practical value years ago, it is now very valuable and worth applying, giving a successor holder a “winning lottery ticket” which allows him to become potentially owner of the property encumbered by the mortgage. “
I asked Jones, “But what explains Andy’s situation? It seems so unfair. Here he was trying to pay, but he couldn’t find anyone to take his money, then, blame, he is threatened with losing the property. What happened? Who are these guys anyway?
Meet the Zombie Mortgage Debt Buyers
I wrote about “zombie consumer debt,” where so-called “bad / written off” accounts are bought by a debt buyer, for pennies on the dollar, who then attempts to collect a consumer. It is an extremely profitable and murky business.
Lawyer Jones explains that the same thing happens with mortgage debt in default:
“The assets of a deceased lender are bought for pennies on the dollar by one of these debt buyers. So, if $ 100,000 is owed, the debt buyer could pay 4% to 10% of that amount and have the option of collecting $ 100,000. Many describe it as legalized extortion. I agree.”
So if you are in a similar position to Andy what should you do? Jones recommends:
- Contact customer service at a securities or escrow company. They have significant resources on mortgage companies that have gone bankrupt and might be able to find who to pay.
- Federal credit bureaus, such as Fannie Mae and Freddie Mac, also have information on lenders and their successors.
- Create a special savings account and deposit the same amount each month you would have paid on the mortgage. That way, when the zombies show up, you have a bargaining power.
- Contact a real estate lawyer immediately. Don’t handle this on your own!
Lawyer, author of “You and the Law”
After attending Loyola University Law School, H. Dennis Beaver joined the Kern County Attorney’s Office in California, where he created a section on consumer fraud. He practices law in general and writes a column in a unionized newspaper. “You and the law“Through his column, he offers free help to readers in need of practical advice.” I know it sounds cheesy, but I love that I can use my education and experience to help, just to help. When a reader contacts me, it’s a gift. ”