Kelly Guzzo has filed multiple cases in recent months to protect consumers against illegal collection of payment and foreclosure associated with decades-old “zombie” second mortgages.
What are zombie mortgages?
Consumers used to finance their homes using two mortgages (often called “80/20” mortgages). During the 2008-07 mortgage crisis, many consumers needed to modify their mortgages to stay in their homes. Most often, however, these modifications only covered a consumer’s first mortgage, and left the second mortgage unresolved. Many of these second mortgages were charged off, meaning that the consumers no longer received statements.
As a result, consumers didn’t hear anything about their second mortgages for years—in some cases even for a decade or more. Now, with the recent surge in home values, consumers have significant equity in their homes, incentivizing lenders to collect or foreclose on second mortgages for the first time in years. To complicate matters further, the second mortgages have often been sold to debt buyers several times over, and now these unfamiliar companies are coming out of the woodwork to collect on loans, in most instances for far more than what a consumer actually owes.
How are companies collecting zombie mortgages?
Most consumers facing a zombie mortgage debt will either start receiving monthly statements in the mail or get a notice from a trustee that their home is to be sold at foreclosure. These communications are confusing because they often contain an amount owed that is much higher than what the consumer borrowed on the mortgage. And failure to pay these inflated debts can lead to foreclosure even if a consumer is current on their first mortgage.
Other consumers may no longer live at the property in question, but that doesn’t stop companies from seeking to collect the unpaid balance on the mortgage. In such cases, a consumer often receives a couple of collection letters in the mail and then is served with a lawsuit for the unpaid balance.
How to Defend Against Zombie Mortgages
In collecting these zombie debts, companies often breach the deed of trust associated with the mortgage. They can also violate a host of federal consumer protection laws, including the Fair Debt Collection Practices Act and the Truth in Lending Act as well as state consumer protection laws.
If you are facing collection of a zombie mortgage, you should contact an attorney as soon as possible to learn about your rights and make sure that you can stay in your home. Make sure to save any papers that you have received about your second mortgage. If you have been served with a lawsuit, make sure to save those papers as well.