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Photo of attorneys Shelley Slafkes and Bruce Levitt

What is a Zombie Mortgage and How Can You Fight Back if You Have One?

On Behalf of | Jul 16, 2024 | Foreclosure Defense, Foreclosure Saving Your Home, New Jersey Foreclosures and Alternatives

What is a Zombie Mortgage?

Did you think your second mortgage, home equity loan or home equity line of credit was written off and then suddenly had it reappear from the dead after many years?  If so, you may have what is called a zombie mortgage.  This can be terrifying as you could cause you to lose your home.

This blog will explain what a zombie mortgage is and ways you can fight back.  If you need help facing a possible foreclosure, a zombie mortgage, or have other debt issues, contact Levitt and Slafkes to discuss possible solutions.

According to the Consumer Financial Protection Bureau,  “’Zombie’ mortgages are mortgage debts that you might have thought were forgiven or satisfied long ago but that still exist.”

We often see homeowners who have no idea that there is a second loan on their property because they have not received any communication from the lender in many years. The homeowner may think that the second mortgage was discharged in bankruptcy, forgiven or modified with a loan modification.  Now, after many years, the lender or debt collector resurfaces claiming they have the right to collect the debt and the right to foreclose and take the property if the debt isn’t paid.

Why Are Zombie Mortgages Becoming More Common?

With the price of houses soaring, zombie mortgages are coming back to life because there is now equity in the home that the second mortgage lender or debt collector can get if they foreclose.

When property values increase, there is more equity in a property. This enables a second mortgage lender to get money even after the first mortgage lender is paid.  Additionally, as the years passed, homeowners paid down more of their first mortgage, increasing home equity as well. When home prices were depressed, the second mortgage lenders would likely have received nothing if they foreclosed.

It is often difficult for a homeowner to understand what is happening because the original lender, whose name they would recognize, rarely still owns the loan.  Parties threatening to foreclose against the homeowner are often debt buyers or collection agencies. The homeowner has no idea who the company is and often ignores communication as they believe they are being scammed.

What is the Impact of Zombie Mortgages on Homeowners?

There can be severe implications for homeowners who have a zombie mortgage.  First and foremost, there is a risk they may lose their house to foreclosure.  Second, over time, the debt has often accumulated a large amount of fees and interest, which increases the amount that is owed significantly over the original amount of the loan.

How Long Does A Lender Have to Bring a Lawsuit to Foreclosure on a Zombie Mortgage?

Unfortunately, under New Jersy law, holders of these zombie mortgages can start a foreclosure action for up to 20  years after the homeowner defaults on payments. It is usually when the foreclosure process begins that the homeowner learns for the first time that the mortgage still exists.

Don’t Ignore Letters and Calls Regarding Zombie Mortgages

At Levitt & Slafkes, we have had many clients who didn’t realize they had an active second mortgage ignore phone calls or communications from a lender they did not recognize thinking it is a scam.

While it is extremely important to avoid scams, if you are receiving these types of communications, you should check the title to your property to find out what, if any, liens or mortgages are on the property.  This can be checked by you, a lawyer or a title company.  This search will determine whether there is a second mortgage on the property.

What Should You Do If You Have a Zombie Mortgage?

If you have been served with foreclosure papers, or otherwise learn that there is a zombie mortgage  on your home, you should contact the lawyers at Levitt & Slafkes, P.C. for help.

Our foreclosure defense lawyers have successfully represented many homeowners with zombie mortgages.  We understand federal and state laws regarding zombie mortgages which allow us to raise defenses and claims to challenge these mortgages.

In fighting the zombie mortgages, we raise many claims and defenses which include laches (meaning they waited too long to sue) and claims under the New Jersey Consumer Fraud Act.  We have also been successful in significantly reducing what people owe on the mortgages by challenging interest and fees under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA).

Similar to other foreclosure defense cases, we also routinely challenge whether the party seeking to foreclose has the standing to do so.

Contact Levitt & Slafkes for Help with Zombie Mortgages and Debt Issues in New Jersey.

If you have a zombie mortgage it is important that you seek legal advice to help you understand your rights. At Levitt and Slafkes, our attorneys will provide you with the knowledge and support you need to help you keep your home.

Call us at  CALL or reach us online.

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