What Is a Zombie Mortgage?
It sounds like something out of a horror movie, but unfortunately a zombie mortgage is a very real and potentially frightening scenario for homeowners in Southern California. Read on for a discussion covering how zombie mortgages are defined, how they occur, their impact on homeowners, and legal protections and solutions that might be available to deal with these creatures. If you need help facing a possible foreclosure or dealing with other debt issues in Southern California, contact Rounds & Sutter at our offices in Ventura and Westlake Village for practical advice and effective strategies from a team of experienced bankruptcy and debt settlement attorneys serving clients throughout Ventura, Oxnard and Camarillo.
Defining a Zombie Mortgage
A zombie mortgage is a mortgage that seemingly comes back from the dead after homeowners, who thought they had effectively dealt with a second mortgage through bankruptcy or loan modification, are now discovering these old loans are now subject to new collection actions. Homeowners are blindsided by the start of foreclosure actions on their homes over these second loans that were taken out many years ago. Often, homeowners are not even aware they still had a second mortgage, believing that these loans were “written-off,” discharged or rolled into their first mortgage. Typically, homeowners will not have received statements on these second mortgages for years as they continued to pay down their first mortgage.
The reason zombie second mortgages are coming back to life is because there is home equity for the second mortgagee lender or debt collectors to feed on. During the years when home values were depressed, second mortgagees were almost certain to obtain nothing if they foreclosed. Since that time, home values in Southern California have risen significantly due to market demand. And, over the years, homeowners continued to pay down their first mortgage, further increasing their equity.
Added to the confusion for homeowners is that the original lenders are seldom still the owners of the loans. Parties threatening to foreclose against homeowners with these zombie mortgages are often debt buyers or their collection agents. These debt buyers will buy a bulk of defaulted loans and then choose to opportunistically foreclose on properties that have considerable equity where they can pay off the first mortgage and obtain the property unencumbered for themselves.
The Impact of Zombie Mortgages on Homeowners
The implications for homeowners caught in a zombie mortgage scenario can be severe. First and foremost, there is a risk of losing their homes to foreclosure. Second, these debts have often accumulated great amounts of interest and other fees, thereby increasing the amount owed well above the original loan amount. Finally, these issues can drastically affect credit scores and financial stability, creating a hidden but substantial burden.
Legal Protections and Solutions
Awareness and legal guidance are key to navigating the complexities of a zombie mortgage. California law provides certain protections for homeowners, but understanding and utilizing these protections can be challenging without experienced legal assistance. Homeowners facing foreclosure or that have now received notification from a zombie mortgage debt collector or loan holder regarding these long-dormant debts may have viable defenses and claims. With the help of competent legal counsel, there are ways to fight off zombie mortgage foreclosures.
One such way includes the legal protections of a bankruptcy proceeding. A bankruptcy could offer many tools to eliminate second mortgages, such as “bifurcation,” “cramdown,” and “lien stripping,” which convert some or all of a secured second mortgage into unsecured debt and discharge it through bankruptcy. While bankruptcy offers many real and effective solutions to deal with second mortgages, these actions should be undertaken with the help of an experienced bankruptcy attorney who can make sure they are done correctly and successfully.
If you find yourself in a situation where a zombie mortgage might be a concern, seeking legal advice is essential. Law firms that practice extensively in bankruptcy and debt settlement, like Rounds & Sutter, offer the expertise needed to assess your situation, explore options like loan modification, short sale, bankruptcy, or other legal strategies, and guide you through the necessary steps to resolve the issue.
Contact Rounds & Sutter for Help With Zombie Mortgages and Debt Issues in Southern California
Zombie mortgages are a complex and potentially distressing issue for homeowners. Understanding your rights and responsibilities, staying informed about the status of your mortgage, and seeking professional legal advice can help you navigate this challenging situation. At Rounds & Sutter, we are committed to providing our clients with the knowledge and support they need to manage their property and financial challenges effectively. In Ventura, Oxnard, Westlake Village, and throughout Southern California, call 805-650-7100 to discuss your needs and find out how we can help.