Before the 2008 financial crisis, a number of predatory lenders sold mortgages to home buyers without properly assessing whether or not these new borrowers could actually repay the loans. To make matters worse, many lenders bundled high-interest second mortgages with the primary loan. These so-called piggyback second mortgages were for as much as 20 percent of the home’s valuation at the time of the purchase.
As housing prices started to decline around 2005, most of these second mortgages were effectively worthless. Borrowers could no longer make their first mortgage payment much less their second. And even if the lender foreclosed, there was no longer sufficient equity in the home to cover the second mortgage.
Consequently, many lenders wrote off their now-worthless second mortgages. And as far as the borrowers were concerned, those loans were dead. For years the homeowners heard nothing from the original lender. Many assumed that their second mortgages were simply refinanced along with their first mortgage. But years later–in some cases over a decade–the borrowers started receiving calls from debt collectors who were now threatening to file lawsuits foreclosing on the long-unpaid second mortgages.
These are colloquially known as “zombie second mortgages,” because the loans seemingly rose from the dead to re-haunt their victims. But if you are faced with a zombie second mortgage, there is no need to panic. You have legal options for fighting back. Our Fort Lauderdale foreclosure defense attorneys have helped many Florida homeowners like you deal with these predatory–and in many cases–illegal attempts to revive the collection of an old mortgage. Contact us today to schedule a consultation.
What You May Not Know About Second Mortgages
The main reason that zombie second mortgages exist is simple: Homes that were considered “underwater” after the 2008 financial crisis are now considered highly valuable again. This means that in theory, there is enough equity in these properties to justify the time and expense of the lender resuming efforts to collect or foreclose on a previously dormant second mortgage loan.
Of course, in many cases it is not the original lender that has revived the dead, so to speak. With zombie second mortgages, it is usually the case that the lender wrote off the loan over a decade ago. A “write-off” is basically an accounting adjustment that reflects the fact the loan was no longer considered an income-generating asset for the lender. The write-off did not actually eliminate the second mortgage or discharge the borrower’s obligation to repay.
What these write-offs meant in practice was that the second mortgages were sold–often for pennies on the dollar–to debt buyers. These buyers purchased underwater second mortgages in bulk, similar to how a discount retailer buys up unsold inventory from a manufacturer or distributor. The debt buyers then held onto these loans, hoping that one day they would be in a position to try and collect on them again.
These debt buyers are often not as sophisticated as you might think. They lack the ability to actually service any of the second mortgages they have purchased. This means they are commonly unable to produce any documentation proving they actually own the loan in question. But they are betting on the fact that a borrower is too timid to actually demand proof or fight back in court.
The other thing that zombie second mortgage buyers are counting on is that the borrower does not know that foreclosure is unavailable because too much time has passed. Many states have a legal deadline–the statute of limitations–for a lender or mortgage note holder to file a foreclosure action. When it comes to zombie second mortgages, it is quite common for the limitations period to have expired years before the borrower receives any communication from the lender or debt collector. But the reality is that if the statute of limitations has expired, then foreclosure is not an option.
More to the point, pursuing foreclosure on a zombie second mortgage can itself violate federal law. The Consumer Financial Protection Bureau explained in an April 2003 advisory opinion that the Federal Debt Collection Practices Act (FDCPA) forbids a debt collector “from suing or threatening to sue to collect a time-barred debt.” This means a company holding a second mortgage note where the statute of limitations has expired can be sued for violating the FDCPA even if they “neither knows nor should know that the debt is time-barred.”
You Have Options to Fight a Zombie Second Mortgage
In addition to pursuing a potential zombie second mortgage statute of limitations defense, Loan Lawyers can assist you in considering all other legal options for fighting off a threatened or filed foreclosure lawsuit on a zombie second mortgage. Some of these options may include:
- Modification: Our loan modification lawyers at Loan Lawyers have often been able to get loan holders to eliminate debt or otherwise settle a zombie second mortgage for just a fraction of what is owed.
- Failure to Service the Loan: Second mortgages must follow a number of state and federal statutes. In many cases, you can sue the owner or servicer of a loan if they do not comply with these rules. For example, the federal Truth in Lending Act (TILA) requires the servicer to provide periodic statements regarding the status of second loans. This rule is in place precisely to prevent zombie second mortgage situations.
- Bankruptcy: Filing for Chapter 13 bankruptcy can buy a homeowner some time to deal with a zombie second mortgage. The bankruptcy proceeding automatically halts any pending foreclosure activity. The bankruptcy process can allow the borrower to challenge the validity of the second mortgage loan. Alternatively, the borrower can seek to “strip off” and discharge the second loan altogether.
The important thing to remember is that just because a company has sent you a letter threatening to foreclose on a second mortgage you thought was long dead, you still have certain legal rights that the lender, servicer, and legal system must respect. By working with an experienced Fort Lauderdale foreclosure defense attorney, you can put yourself in the best position to save your home.
Loan Lawyers has a proven track record of suing, counter-suing, and winning Zombie Second Mortgage foreclosure cases. We have litigated countless Zombie Second Mortgage cases, have gotten them thrown out of court, gotten interest waived, or settled for pennies on the dollar.
Here are some of the regular loan servicers and banks that purchase and file foreclosures on Zombie Second Mortgages that we have been successful against:
- Specialized Loan Servicing (SLS)
- FCI Lender Services (FCI)
- Dyck O’Neal
- Interstate TD Investments
- Select Portfolio Servicing (SPS)
- First Franklin Mortgage Loan Trust
So if you need to speak with a Florida foreclosure defense lawyer, contact Loan Lawyers today. We have over 100 years of combined experience in defending homeowners. Call us at (954) 523-4357 to schedule a free initial consultation.
