'Zombie mortgage' a nightmare for Carson couple facing threat of losing their home

Carlos Granda Image
Friday, November 17, 2023
Carson couple dealing with 'zombie mortgage' nightmare
A Carson couple may lose their home over a "zombie mortgage" - or a loan they had been told was written off years ago.

CARSON, Calif. (KABC) -- A Carson couple is facing foreclosure because of what's known as a "zombie loan."

That term refers to a second mortgage that seemed to have been forgiven or written off - until years later when a collector reaches out about the unknown, but supposedly unpaid, debt.

Such confusion over mortgages has led to a surprise massive bill that Adaina Brown and her husband can't pay.

Brown says they are living in what was supposed to be her dream home. Now she's worried she might lose it.

"It kind of just broke my heart. I told my husband I can't take another thing," says Brown.

READ ALSO | 'Zombie mortgages' could be attached to a property, even if they were charged off years ago

Financial experts worry there are thousands of these so-called "zombie mortgages" handled by many different companies, and homeowners might not be aware of the consequences.

She and her husband bought the house in 2007. They needed a first and second mortgage. When the housing market crashed she says the mortgages were transferred several times to new companies.

She says her original lender eventually charged off the second loan.

But then it showed up with a new company.

After she spoke with them, that company sent her a letter that said she was not responsible for the debt.

"They said thank you for reaching out. You're absolutely right, this debt has been charged off. You are no longer liable for this debt. We will update your credit. They sent me a new credit report," says Brown.

But just a few months later that same loan showed up again with yet another company, Specialized Loan Servicing, which said she owed $139,000. Since then Adaina says the company filed against her property.

"I get a notice of default and hundreds of Realtors called me about my house saying, do I want to sell it, it's in pre-foreclosure," says Brown.

Back in 2020 the federal government's Consumer Financial Protection Bureau found that Specialized Loan Servicing violated regulatory guidelines by foreclosing against borrowers who were entitled to protection.

"It's illegal for an agency to sue or try to collect debt that's way past the statute of limitations," says bureau official Mark McArdle. "So your classic zombie foreclosure."

Now that they notified Brown of a default, the loan company could sell the house at any moment. So she's trying to be proactive. She might have to sell the home even though she doesn't want to.

"Ultimately the goal is to keep it but I don't have $200,000 to keep this house. I don't have money for a lawyer. And I don't want a foreclosure on my record either you know, so it's just like we're in a lose-lose situation," says Brown.

Information about zombie mortgages and how to file a complaint with the Consumer Financial Protection Bureau is available here.

"So we do encourage everybody in that situation to make a complaint to the bureau. And especially if they're facing foreclosure, we have a a flag that they can click. That helps us prioritize it so we can intervene," says McArdle.

After ABC7's story aired, SLS provided a statement saying that foreclosure is always a last resort and that the company is confident that it complied with all regulatory requirements.

The statement also went on to say, in part:

In the case of Mr. and Mrs. Brown, the previous servicer discharged their personal liability for the debt as the statute of limitations to pursue collections on the promissory note expired. As a result, the Browns are not personally liable for the monthly loan payments, but there is a mortgage lien on the property that is intact and enforceable. A lien remains in place on the property in question until the debt is resolved through payment in full, an agreed settlement, or foreclosure.

For the lien to be released and the Browns to retain full ownership of the property, the debt associated with that lien must still be resolved.

We are aware that this may be confusing. Simply put, when money is borrowed, the debt continues to exist attached to the mortgage lien-until the debt is satisfied.