There’s been increasing discussion about a term known as “Zombie Mortgage.” Many homeowners have found themselves unexpectedly dealing with this type of mortgage.
A zombie mortgage usually happens with a second mortgage. It occurs when a homeowner believes their second mortgage has been forgiven or forgotten, but it still exists. These mortgages, metaphorically rising from the dead, can haunt homeowners years after they thought the debt was settled.
Table of Contents
- Understanding Zombie Mortgages and How to Safeguard Your Home
- How You Can Protect Yourself From a Zombie Mortgage
- Related Questions
Understanding Zombie Mortgages and How to Safeguard Your Home
The concept of a Zombie Mortgage emerged after the 2008 foreclosure crisis, during which many residential mortgage loans defaulted. Homeowners might have thought their mortgage debt was forgiven or satisfied, but it remained active.
The typical statute of limitations for debts and contracts is six years, but it can be longer in some jurisdictions, ranging from 10 to 30 years. A zombie mortgage is not a new type of mortgage; it’s simply one that has been dormant and forgotten.
The significance of zombie mortgages has resurfaced due to rising property prices in various regions. Increased property values build equity, allowing secondary mortgage holders to profit even after the first mortgage holder is paid off.
Additionally, foreclosure filings have risen, indicating renewed interest from second mortgage holders. The number of foreclosure filings and attempts to collect on zombie debt is increasing, making this issue more prevalent.
To protect themselves, homeowners should fully understand the terms of their second mortgage, verify unfamiliar lenders, check property titles for encumbrances or liens, seek legal assistance if caught in a zombie mortgage, and respond to all communications regarding their mortgage to ensure they are not missing crucial information.
By staying informed and proactive, homeowners can safeguard themselves from the financial and legal troubles associated with zombie mortgages.
What Is A Zombie Mortgage?
A zombie mortgage typically involves a second mortgage that the homeowner believed was forgiven or forgotten but still exists. These mortgages, metaphorically rising from the dead, can haunt homeowners years after they thought the debt was settled.
Homeowners might have thought their mortgage debt was forgiven or satisfied, but it remained active. A zombie mortgage is not a new type of mortgage; it’s simply one that has been dormant and forgotten.
Why Are Zombie Mortgages Important Now?
The significance of zombie mortgages has resurfaced due to rising property prices in various regions. Increased property values build equity, allowing secondary mortgage holders to profit even after the first mortgage holder is paid off.
Additionally, foreclosure filings have risen, indicating renewed interest from second mortgage holders. The number of foreclosure filings and attempts to collect on zombie debt is increasing, making this issue more prevalent.
Are Zombie Mortgages Legal?
Under the Truth in Lending Act, lenders and debt collectors are legally required to provide homeowners with monthly notices about their debt. Failure to communicate the debt amount could be considered illegal.
When a homeowner defaults, the lender can choose if and when to foreclose, but it must follow the proper legal process.
Zombie mortgages could also become a consumer protection issue if homeowners are shown to have been misled. With the increase in these types of mortgages, all these legal aspects need careful consideration.
Could Homeowners Lose Their Homes?
Yes, homeowners could potentially lose their homes due to zombie mortgages. If the debt is owed, lenders can seek repayment or foreclose on the property.
The foreclosure process is heavily regulated, requiring several notices and sometimes a property auction. If the mortgage investor forecloses and receives the proper redemption rights, they can evict the homeowner, pay off the first mortgage holder, and own the property outright.
How You Can Protect Yourself From a Zombie Mortgage
There are several steps homeowners can take to protect themselves from zombie mortgages:
Understand Your Second Mortgage:
Fully read and comprehend the terms of your second mortgage. Know all the lenders involved and ensure you know who holds the mortgage.
Verify Unfamiliar Lenders:
If you receive a call from an unfamiliar lender, don’t assume it’s spam. Contact your original lender to verify if the unfamiliar lender is associated with your mortgage.
Check Property Titles:
Regularly check the property title for any encumbrances or liens. This can be done by yourself, a lawyer or a title company to ensure no unexpected second mortgages.
Legal Assistance:
If you are caught in a zombie mortgage, seek legal help to challenge it in court. A lawyer can often waive fees and interest and sometimes get the second mortgage removed from the title entirely.
Respond to Communications:
Do not ignore calls or communications regarding your mortgage, even if they seem suspicious. Perform due diligence to verify their legitimacy. You can do this by understanding if the lender who is calling you is part of your mortgage.
By staying informed and proactive, homeowners can protect themselves from the financial and legal troubles associated with zombie mortgages.
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