By Charlestien Harris
I know it’s a little early in the year to talk about zombies, but “they” are a very serious issue that have recently been creeping up on unsuspecting homeowners.
First, let me give you a clear definition of what a “zombie” mortgage is. Zombie mortgages are mortgage debts that consumers thought were forgiven or satisfied long ago, but that still exist. The debts may have been written off by the lender and sold for pennies on the dollar to debt collectors. Before the recession hit in 2008, mortgage lenders sometimes sold borrowers two mortgages for the same property, instead of one. For example, a primary mortgage might cover 80 percent of the loan, and a second mortgage covers the remaining 20 percent. Now, years later, debt collectors are pursuing borrowers on these smaller second mortgages, tacking on years’ worth of late fees and interest on top of the comparatively low principal balance of the second mortgage.
According to the National Consumer Law Center (NCLC), there are several ways that you may be able to handle this problem if you are a homeowner dealing with this issue. Let’s take a look at some of those ways below.
Research your state’s statute of limitations laws.
Every state has a statute of limitations law that governs how, when, who, and what debts can be collected after a certain period of time has expired. Examine your own state laws to determine the statute of limitations applicable to foreclosures. The next step is to determine when the statute of limitations timeline begins for your situation. You should look for these three factors when trying to determine your timeline:
The due date of each unpaid installment may start the “collection” clock.
Whoever owns the debt, and the acceleration process does make the entire loan balance due if not paid.
When is the contractual maturity date, and if any remaining balance is left, it is due immediately and, like acceleration, it too can start the statute of limitations clock for the entire unpaid amount.
Use the Fair Debt Collection Practices Act (FDCPA) to your advantage.
The Fair Debt Collection Practices Act prohibits unfair or deceptive debt collection activities. A debt collector seeking to collect a debt that is not lawfully owed or trying to enforce a security interest when the debt collector does not have the right to do so is illegal according to the law. Once you have proven that the FDCPA law has been broken, you have the right to recover statutory penalties, damages, and attorney’s fees. Servicers of “zombie” mortgages may qualify as debt collectors, especially if they acquired the servicing rights after the loan went into default.
Laches and Equitable Defense is another option you might consider.
This is a legal action, and if you are seeking to take advantage of this option, I would suggest you obtain a lawyer that is well-versed in this area of the law. The information provided is for educational purposes only, not advice. Laches-Equitable defense or doctrine is defined as an unreasonable delay in making an assertion or claim, such as asserting a right, claiming a privilege, or making an application for redress, which may result in refusal. A defendant who invokes the doctrine is asserting that the claimant has delayed in asserting its rights, and, because of this delay, is no longer entitled to bring an equitable claim. This type of zombie mortgage foreclosure action could be barred under the doctrines of laches. Three factors that are considered when being able to use this defense are the creditor’s knowledge of the cause of the action, an unreasonable delay in taking the action, and the damage that has resulted from the unreasonable delay of action. Understanding these three factors can help establish a defense for your case against the debt collector.
Consider your loss mitigation options that may be available through your loan servicer.
Loss mitigation is defined as the process of borrowers and mortgage servicers working together to create a plan to avoid foreclosure. Loss mitigation options created by the loan servicer and the mortgage insurers (if you have mortgage insurance) can be vitally important tools to help address the issue of a zombie mortgage. You should note that certain options, including several loan modification remedies, only apply to first mortgages. On the other hand, some forbearance options do allow a homeowner to address that second mortgage balance and it can keep the loan from being foreclosed on by the loan servicer.
Zombie mortgages are not new, but they have become an increasing problem in the mortgage industry lately. The Consumer Financial Protection Bureau has a page that you can use to find out more information about this topic. You can also learn more about zombie mortgages from a webinar on the National Housing Resource Center’s YouTube page. The video lasts about an hour and a half, but the information is very detailed, and it is full of pointers on how to properly handle a zombie mortgage issue.
For more information about this and other financial topics, please feel free to contact me at Charlestien.Harris@banksouthern.com or call me at 662-624-5776.
Until next week – stay financially fit!
Note: Charlestien Harris is a financial expert with Southern Bancorp Community Partners whose articles are seen in a number of publications around the region.