Zombie mortgage is haunting homeowners and they are now facing foreclosure

Thousands of homeowners are at risk of losing their homes to ‘dead mortgages’ bought by companies – with some going into foreclosure without their knowledge, according to a shock report.

Many distraught homeowners took out second mortgages during the subprime housing bubble between 2004 and 2008, which they thought had been written off – only to learn the mortgages had come back to haunt them.

Investigation by NPR It found at least 10,000 older second mortgages that had foreclosure activity initiated within just the past two years.

“The numbers to me are very scary,” Andrea Pope Stark, an attorney at the National Consumer Law Center, told the site.

It is feared that the problem will spread widely throughout America.

“If you look at the number of these foreclosure filings, or at least the attempts to collect on these dead debts, you start to see the numbers skyrocket into the thousands, if not more, in individual jurisdictions.” David Weber, a professor at Creighton University School of Law, said: New York times.

“That’s a lot of activity.”

Two years ago, a Massachusetts nurse walked out her front door one spring morning to find 20 cars parked near her Quincy home with the intention of selling her house, NPR reported.

“I had a feeling that something really bad had happened… like someone in the neighborhood had died.” McDonough told NPR.

When she approached one of the people who arrived at her home, she was told: “We are selling your house.”

“This is the foreclosure. You will lose this house.”

It surprised McDonough. She had owned the home for 17 years and was making her mortgage payments.

But they had a “zombie” mortgage on her house that she wasn’t aware of.

She bought the house in 2005 for $365,000 with an “80/20” loan. One mortgage covered 80% of the home’s cost — $292,000 — while the other covered the remaining 20% ​​— equivalent to $73,000.

“It was the easiest thing I’ve ever applied for,” McDonough told NPR. “I just filled out the paperwork, submitted it, and was approved.”

McDonough was making her mortgage payments the first two years, but interest rose after the second year, causing her monthly bill to rise by $700.

When she requested a mortgage modification, she said she was informed by the company servicing both loans that the second mortgage had been forgiven.

“I was actually in my kitchen. “I was cooking dinner, and I was talking to a representative…and he told me I would never have to make a second mortgage payment again.”

“And I didn’t question any of it because I was so grateful for the loan modification.”

McDonough said she no longer receives data on the 20% loan. But recently she started receiving phone calls asking for money.

Assuming those phone calls were scams, I ignored them.

The letter she received then was from First American National, a company she had never heard of before.

“It had an amount in it and they wanted to pay it… like $77,000,” she said. “I was kind of in disbelief.”

McDonough told NPR that First American National kept calling her and threatening to foreclose if she didn’t pay.

When McDonough called the company that serviced the first mortgage, she said she was told it was likely a scam.

“I was crying with them on the phone, like I was having a nervous breakdown,” McDonough said.

“And they kept saying like we’re going to help you. You can’t lose your home through this.”

But her fears were justified.

LLCs registered in Delaware, whose owners’ identities are protected by law, bought packages of mortgages for pennies on the dollar in the wake of the 2008 housing market crash — when banks were selling them very cheaply during their collapse.

Since housing prices were low after the crash, mortgages became worthless. But once home values ​​rose in the following years, investors who had purchased the loans looked to cash in.

McDonough’s house, which she bought for $365,000, is now worth $600,000.

First American National purchased her home at auction for $178,500 and is the legal owner of the home. However, McDonough is still living in her home after filing a lawsuit alleging the company used unfair and deceptive practices to foreclose on her home.

She continues to make payments on her first mortgage.

“I feel like what happened was a terrible thing,” McDonough said.

“But I still really hope I can stay in my house. I really hope I win this case.”

McDonough’s lawyers allege that the second mortgage she was told was forgiven was instead sold in 2020 along with about 600 other mortgages to an LLC linked to First American National.

“We believe they systematically and intentionally violated the law,” Todd Kaplan, an attorney at the nonprofit Greater Boston Legal Services, told NPR.

First American National, a small company based in New Jersey, is run by Ira Bailey, who told NPR that he’s been buying second mortgages for about 20 years.