Zombie Second Mortgages: What are Your Options?

Now that the real property market is at it’s high, we are seeing many more second mortgages seemingly coming out of the woodwork.  Despite years of inactivity, including no communications with a borrower, second mortgages are now threatening foreclosure if payments aren’t resumed to them.  What can you do if you hear from a second mortgage which you thought was charged off, included in a government settlement back during the foreclosure/financial crisis, discharged in bankruptcy or maybe included in a prior loan mod?

Besides filing a Consumer Financial Protection Bureau complaint, which we recommend, there are a number of defenses that we utilize to prevent a foreclosure.  The first involves raising federal statutory protections which require notice to the borrower of transfer of ownership, transfer of servicing and periodic statements.  Failure to comply with any of those requirements under the Truth in Lending Act (“TILA”), and the Real Estate Settlement Procedure Act (“RESPA”) can create statutory and actual damages.

Bankruptcy may present options to either pay off the second mortgage under terms you can afford, or even strip it off the property in the right circumstances.  You can challenge the amounts owed by objecting to any proofs of claim filed in a bankruptcy.  You can also surrender the house and discharge any remaining debt.

Negotiation of a loan mod is possible, but this is often harder to do for a second mortgage.

Other options include checking your credit reports and requesting correction of any errors.  Hiring an attorney to bring a Fair Credit Reporting Act case is well worthwhile as statutory and actual damages are available.

Florida is a judicial state.  Which means you may have additional defenses in a court case.

Sometimes the debt or a portion thereof may be time barred — beyond the statute of limitations.  A collections letter may have wrongly included time barred debt which is a Fair Debt Collections Practice Act violation.

It’s good to hire an attorney to run through your facts, see what your goals are – and what options may exist to obtain those goals.  Together we can determine the best path forward.