A number of homeowners are facing the possibility of losing their homes over second mortgages that they had taken out over a decade ago. Many of these homeowners believed that their second loans were either rolled in with their first mortgage payments or were forgiven. Unfortunately, these loans did not go away and now are legally collectible, even if they are years old. This type of debt is often referred to as “zombie debt.”
What are zombie debts? Essentially these debts are old loans being pursued with new collection actions.
For homeowners who were not expecting to pay these extra expenses, this news comes as quite a shock. These second loans are often purchased later by another financial entity for collection. Now that home values have gone up, there is more of an urgency for these financial entities to take advantage of this equity.
In their defense, many homeowners argue they were not aware of their second mortgages due to confusing loan structures. Others claim that their second mortgages were rolled into their first mortgage balances, which were being paid. Even more claim that their second loans were forgiven.
If these debts are so old, then how come mortgage providers or third-party collection agencies can pursue them? Consumer debts do come with their own statute of limitations, which is the amount of time that the original creditor or debt collector can use the legal system to enforce a debt. Once this statute of limitations has expired, it is no longer legally enforceable.
The fact that these debts are so old has homeowners facing foreclosure wondering if these lawsuits are valid. Unfortunately for homeowners, zombie debt collection is legal.
According to a 2016 Florida Supreme Court ruling on foreclosures, the statute of limitations on foreclosures does not toll until five years after the last payment comes due under the terms of the mortgage. This last payment can come due years after the loan first is taken out. Add five years to that date, a long period of time may have passed since the second mortgage was issued.
When asked why they waited so long to collect on a debt, many of these debt collectors have failed to respond or have given no firm reasoning, other than the fact that now home values have increased, making the foreclosure more lucrative than before.
If a homeowner has been contacted regarding a zombie debt or old home loan, it is imperative that he or she speak with an attorney as soon as possible. The homeowner should never ignore the legal action, as a default judgment could result.
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Choosing the right attorney can make the difference between keeping your home or losing it in foreclosure. A well-qualified Miami foreclosure defense attorney will not only help you keep your home, but they will be able to negotiate a loan that has payments you can afford. Miami foreclosure defense attorney Timothy Kingcade has helped many facing foreclosure alleviate their stress by letting them stay in their homes for at least another year, allowing them to re-organize their lives. If you have any questions on the topic of foreclosure, please feel free to contact me at (305) 285-9100. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
‘Zombie Debt’: Homeowners face foreclosure on old mortgages – WVUA 23