How to Escape From a Zombie Mortgage

Zombies are terrifying because even though they move slowly, they just keep coming. Zombie mortgages can pursue you, too, long after you thought they were dead and done.

If you’re a homeowner, these undead obligations can be even scarier than actual zombies. However, zombies can be escaped or killed in several ways. And so can zombie mortgages.

What Is a Zombie Mortgage?

Zombie mortgages are second mortgages (home equity loans, “piggyback” loans or home equity lines of credit) that were supposedly resolved long ago — either forgiven, modified or discharged in bankruptcy. But now, debt collectors are surfacing and claiming that they have the right to collect this debt and the right to foreclose and take the property if the debt isn’t paid.

How Do Zombie Mortgages Happen?

There are a few scenarios that can birth a zombie mortgage.

— Homeowners modified their first mortgage without realizing that their second mortgage wasn’t part of the deal. The borrowers thought they only had to pay the first mortgage. Especially if they had a first and second with the same lender — they assumed a modification covered both loans when that wasn’t the case.

— Borrowers stopped making payments on a second mortgage, but the lender didn’t foreclose at the time. Or the lender might have started a foreclosure and didn’t complete it. Sometimes, the borrowers moved out and moved on, but the debt remained in their name.

— Homeowners thought they concluded their second mortgage with a deed in lieu of foreclosure, but it was never recorded. Or they believed it was resolved in a short sale or discharged in a bankruptcy. But it wasn’t.

Sometimes, says Derik N. Lewis, attorney and owner of Lawyers Realty in California, the first mortgage lender forecloses, the property is sold and there isn’t anything left securing the second mortgage. However, the lender on that second mortgage still has an unsecured debt, which may be resurrected later and catch the unlucky borrower off guard.

“The mortgage disappears in the foreclosure,” he says. “But the debt does not. It becomes an unsecured debt, similar to a credit card balance.”

Paperwork can be neglected or misfiled, mistakes can happen, and sometimes shady dealings occur. Any of those things can create a zombie mortgage.

[Read: Best Home Equity Loans.]

The two root causes of zombie mortgages are:

— Plummeting home values during the Great Recession (and, to some extent, the COVID pandemic)

— Information about their loans not getting to borrowers

When so many mortgages were underwater — that is, the debt exceeded the value of the property — second mortgage lenders discovered that a foreclosure sale wouldn’t net them anything after paying off the first mortgage. Foreclosures cost thousands of dollars, so second mortgage lenders often opted not to pursue them. Many sold these past-due accounts to debt collectors or put them on their back burners.

But now, home values have hit record highs. Debt collectors are coming for their money. And interest and penalties may have added an eye-watering amount to the original balance.

How Do You Know if You Have a Zombie Mortgage?

If you stopped paying a second mortgage and never heard from your lender, or if you went through a mortgage default, loan modification, short sale or bankruptcy, check a few things.

Your county recorder maintains property records. They’re public, and you can often search for them online. Look for your address and see if there is a second mortgage against your home and a notice of default. When a mortgage has been satisfied, you’ll normally see a deed of reconveyance releasing the lien on your property. If there’s a default and no resolution, you might have a problem.

Colorado attorney Jonathan Feniak says, “In a title report, you might stumble upon mentions like ‘lien discharge not filed’ or ‘secondary mortgage unsatisfied,’ which could signal potential zombie mortgage exposure. Ignoring these could potentially lead to foreclosure or loss of property, even if the homeowner believed the mortgage was settled.”

Check your old tax filings. Forgiven loans are generally taxable. If you have an IRS Form 1099-C, your debt was most likely forgiven and can’t be resurrected. If you didn’t receive a 1099 indicating the amount of debt that the lender forgave, you could have a zombie mortgage.

If you have a mortgage modification, go through your old paperwork. See if your second mortgage was forgiven, and make sure that past-due amounts weren’t wrapped into a new second loan.

[READ Best HELOC Lenders]

What Should You Do About a Zombie Mortgage?

If you know that you owe the money, there are ways to deal with it. The fact that you avoided foreclosure allowed you to keep your home, and now you are benefiting from that added value. You can use this to pay off the old second.

You may be able to negotiate a lower payoff or work out a payment plan with the collector. California lawyer David J. Greiner says, “It’s common to settle zombie mortgages for less than the full amount owed, particularly when the borrower can demonstrate financial hardship or legal deficiencies in the original process.”

Consider borrowing against your equity to pay off the second loan. Check an online valuation source or consult a real estate agent to estimate your home value and equity, or contact a mortgage lender for help.

Borrow from another source. You don’t need home equity to borrow with a personal loan, and you won’t require a home appraisal. These lenders tend to work quickly and can get you out of a jam.

On the other hand, you may not owe anything. Or the full amount may not be collectible.

How to Fight a Zombie Mortgage

There are a number of defenses for zombie mortgages. “The most common defense to a zombie mortgage,” says Feniak, “is ‘quiet title action,’ which enables homeowners to eliminate uncertainties over property rights when dealing with these types of mortgages.”

Other defenses include the three listed below, and there are additional lesser-known remedies an attorney can go over with you. If you plan to fight a zombie mortgage, you’ll probably want to consult an attorney.

Statutes of limitations

Statutes of limitations prohibit collection actions for debt after a specific amount of time. Each state has statutes of limitation for debt, and various types of debt can have different limits within a state. An old second mortgage may not be collectible after the statutory period has passed. In many states, that’s after six years.

However, it can be more complicated. Some states count each past-due payment as its own debt. If the statutory period was four years, for instance, the first missed payment would become uncollectible after four years, but the next 47 months would still be fair game. In some states, the statute doesn’t start to run until a lender forecloses, and some have no statute of limitations for mortgage debt at all.

Mortgage law: TILA and RESPA

The Truth in Lending Act and the Real Estate Settlement Procedures Act protect mortgage borrowers. Among the many provisions of these acts are requirements that borrowers must be notified when the right to collect their loan payments is transferred or sold.

In addition, borrowers must be informed when a loan has been charged off or reactivated for collection, and receive periodic statement disclosures when the loan is in arrears. This may limit the added interest and penalties a collector is entitled to if these requirements were not met.

However, Lewis says it’s not that simple. “Failing to comply with TILA is a technical violation, and the lender may have to pay a fine. For anything more, the borrower has to prove damages resulting from the violation. How were you damaged by being asked to repay money that you borrowed?”


The Fair Debt Collection Practices Act governs debt collectors. They can’t try to collect a debt by deceptive means or attempt to get money they’re not entitled to (including “time-barred” debts beyond the statutes of limitation). It’s not unusual for debt collectors to shoot first and ask questions later, and they don’t always have records proving that you owe the money or that they have the right to get it from you.

[Read: Best Mortgage Refinance Lenders.]

Avoid This One Mistake

Don’t ignore a zombie mortgage! However, when contacted about a zombie mortgage, avoid discussing it, admitting to it or negotiating it with the collector. Any of those things could restart the clock on the statute of limitations and box you in.

— Request proof that you owe the debt and that the collector has the right to contact you. This is called a “debt validation letter” and the Consumer Financial Protection Bureau has an example you can use.

— Decide what you want to do: Ignore the debt (not recommended), pay the debt, negotiate the debt or dispute the debt.

— If you plan to dispute the debt, strongly consider contacting a lawyer.

Greiner warns, “Ignoring zombie mortgages can have severe consequences, such as continued accumulation of interest and fees, damaging one’s credit score, and potential legal actions leading to further financial distress. In some cases, ignoring it might even prevent the sale or refinancing of the property, making it critical to address these issues promptly and seek legal advice where necessary.”

Zombie mortgages can be scary. But they can be confronted successfully. And you’ll survive the encounter.

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How to Escape From a Zombie Mortgage originally appeared on

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