Known as Zombie Mortgages, these arise "...from second mortgages or HELOCs that homeowners believed were canceled in the wake of the Great Financial Crisis," says Joel Berner, senior economist at Realtor.com®.
"The original lenders stopped collecting payment on them, but when they are sold to debt purchasers, they 'come back to life' and homeowners are faced with bills they didn't expect or even the threat of foreclosure."
What makes this an issue is that some of these loans were forgiven under a $25 billion national mortgage settlement that targeted foreclosure practices and other mortgage abuses by banks after the 2008 financial crisis. In some recent instances, homeowners were foreclosed on despite having tax documents showing their loans had been canceled years before.
Per an article on Realtor.com, Senator Elizabeth Warren of Massachusetts is asking for documentation to better determine what is going on. From the article, "'I am concerned that banks may have received credit for extinguishing second mortgages in the settlement, when in fact they sold those loans to debt collectors,' Warren wrote in her letter to Joseph A. Smith Jr., independent monitor of the 2012 settlement between the Department of Justice, 49 state attorneys general, and the largest mortgage servicers. 'There have been numerous cases of homeowners who had stopped receiving statements on their second mortgage, received tax documents saying their second mortgage was cancelled, or had the loans removed from their credit reports, and then learned that the second mortgage was still active,' the Democratic senator wrote in her letter to Smith."
This is scary stuff. I am glad someone is looking into this abuse. If you had a second on your house that was forgiven and are having problems with it rising from the dead, contact your local Assemblyman. They are still trying to work out if this issue will be addressed federally or at the state level but make sure your voice is heard if you are in this situation.
