Thousands of homeowners are at risk of losing their homes to “zombie mortgages” bought by companies – some forcing foreclosures without their knowledge, according to a shocking report.
Many stunned homeowners took out second mortgages during the subprime housing bubble between 2004 and 2008, which they believed had been written off — only to learn that the mortgages came back to haunt them.
An NPR investigation found that at least 10,000 old second mortgages went into foreclosure in the last two years alone.
“The numbers scare me a lot,” Andrea Bopp Stark, an attorney at the National Consumer Law Center, told the outlet.
There are fears that the problem will be widespread across America.
“If you look at the number of these foreclosures filed, or at least the attempts to collect on this zombie debt, you start to see the numbers increase dramatically into the thousands, if not more, in every jurisdiction,” David Weber, a professor at Creighton University Law School, told the New York Times.
“It’s a lot of activity. »
Two years ago, a Massachusetts nurse walked out her door one spring morning to find 20 cars parked near her Quincy home with plans to sell her house, NPR reported.
“I just had the feeling that something really bad had happened … like maybe someone in the neighborhood had died,” McDonough told NPR.
When she approached one of the people who had driven to her house, she was told, “We are selling your house.”
“It’s a seizure. You’re going to lose this house.
McDonough was stunned. She had owned the house for 17 years and her mortgage payments were increasing.
But it was a “zombie” mortgage on her house that she didn’t know about.
She bought the house in 2005 for $365,000 with an “80/20” loan. One mortgage covered 80% of the cost of the house, or $292,000, while the other covered the remaining 20%, or $73,000.
“It was the easiest thing I’ve ever applied for,” McDonough told NPR. “I just filled out some paperwork and submitted it and I was approved.”
McDonough made his mortgage payments for the first two years, but the interest spiked after the second year, increasing his monthly bill by $700.
When she asked for the mortgage to be modified, she said she was informed by the company that serviced both loans that the second mortgage had been canceled.
“I was actually in my kitchen. I was making dinner and talking to a representative…and he told me I would never have to make a payment on the second mortgage again,” she said.
“And I just didn’t question anything because I was very grateful that the loan was modified.”
McDonough said she is no longer receiving statements on the 20 percent loan. But recently she started receiving phone calls asking for money.
Thinking these phone calls were scams, she ignored them.
Then she received a letter from First American National, a company she had never heard of.
“There was an amount and they wanted payment… like $77,000,” she said. “I was a little in disbelief.”
First American National then continued to call her and threaten foreclosure if she didn’t pay, McDonough told NPR.
When McDonough called the company that handled the first mortgage, she said she was told it was probably a scam.
“I was crying on the phone with them, like I was having a nervous breakdown,” McDonough said.
“And they kept saying we’re going to help you.” You can’t lose your house because of this.
But his fears were well founded.
Limited liability companies registered in Delaware and whose owners’ identities are protected by law bought bundles of mortgages for pennies on the dollar in the wake of the 2008 housing crash – while banks were selling them at a very low prices while they were going bankrupt.
As house prices were low after the crash, mortgages were worthless. But when home values soared in the years that followed, investors who bought out the loans sought to profit.
McDonough’s house, which she bought for $365,000, is now worth $600,000.
First American National purchased his home at auction for $178,500 and is the legal owner. McDonough, however, is still living at home after filing a lawsuit alleging the company used unfair and deceptive practices to seize her home.
She continues to pay her first mortgage.
“I feel like what happened was a terrible thing,” McDonough said.
“But I’m still really hopeful about staying home. I’m really hopeful that I’ll win this case.
McDonough’s lawyers say the second mortgage he was told was sold in 2020 along with about 600 other mortgages to an LLC linked to First American National.
“We believe they systematically and deliberately broke the law,” Todd Kaplan, an attorney with Greater Boston Legal Services, a nonprofit, told NPR.
First American National, a small company based in New Jersey, is run by Ira Bailey, who told NPR that he has been repurchasing second mortgages for about 20 years.