Zombie Second Mortgages Are Hard to Kill

Zombie mortgages are hard to kill. But in the past two years, we successfully used Chapter 13 and consumer law violations to save two families from foreclosure by zombie second mortgages.

Maurice and Lily Hadn’t Paid the Zombie Mortgage Since 2008

Maurice and Lily fell on hard times and stopped paying their home equity loan during the mortgage crisis in December 2008. Suddenly, in 2023, that zombie home equity loan started to foreclose, saying they were $216,394.75 behind.  (The principal balance on the loan in December 2023 was $86,188.33. The zombie mortgage claimed $130,000 in interest.)

We filed Chapter 13 to stop the foreclosure and we had a fight on our hands.

Here’s what we had going for us. The Truth in Lending Act requires a mortgage company to send monthly bills. Somewhere along the line, the mortgage company had stopped. We said a total of 108 months had no monthly statements, so we argued we could deduct $140,000 from what was owed.  That was double the interest on those months. The double the interest penalty is in 15 USC 1640(a)(2)(A)(iv).

We didn’t get the whole deduction we wanted, but the mortgage company agreed to reduce the $216,394.75 to $100,000.00. And they also agreed to call the $100,000 current, so it was back on a monthly payment, instead all all due at once. The house was saved.

Phil and Emma Stopped Paying in 2013.

Phil and Emma bought a house January 2007, with a $575,000 first mortgage at 5.75% and a second of $135,000 at 9%.  Their payment on the second was $990 per month and they kept it up until January 2013.  After seventy months of paying almost a thousand dollars per month, they had only reduced their balance on that mortgage by just $7,000.00. From $135,000 down to $128,000.  At that point, they gave up trying to pay.

Fast foward ten years, the second mortgage started to foreclose, claiming Phil and Emma now owed $218,000 (on the original $135,000 plus $84,000 in interest) and were $108,041 behind.

We filed Chapter 13 to stop the foreclosure, and I brought in a Virginia lawyer–who is a nationally known consumer law expert–Kristi C Kellly, to help fight this. Ms. Kelly fought back with claims under the Virginia Consumer Protection Act  and RESPA.

Eventually, the zombie mortgage agreed to a compromise settlement. The settlement balance was $137,877 (close to the $135,000 original loan) and the interest was reduced from 9% to 6.3%.  Most importantly, instead of being $108,000 behind, Phil and Emma were made current.

The house was saved.

We were able to fight off the zombie mortgages and save two family homes.

Zombie Loans are Enforceable

The fact that a loan is showing “charge off” on your credit report, doesn’t help you. And the statute of limitions on mortgages in Virginia is really long.  

But, those zombie mortgages may have consumer law violations that you can use along with Chapter 13 to stop a foreclosure, renegotiate the loan and get back in track.