Zombie Mortgages Haunt Homeowners in Santa Maria, California.

Zombie mortgages are those old loans or mortgage debts where the homeowner assumes they have been fully paid off but still exist. Typically, these debts resurface with additional interest and fees that the homeowner did not expect, and they begin to pose problems that threaten financial stability.

These debts are often sold to new service providers or managers who aggressively pursue the amounts, sometimes leading thousands of homeowners to face foreclosures on homes they believed were paid off.

One victim of this phenomenon was Mr. Jose Arzate, who purchased his home in the city of Santa Maria two decades ago, believing he was securing his family’s future through the appreciation the property would gain over the years. What he didn’t know was that a hidden financial nightmare was destroying his dream.

According to Jose, thirteen years ago, due to economic problems, he had to modify his loan and took out a second mortgage on his property. At that time, he assumed that the payments he was making were covering both mortgage loans. What he didn’t know, and without receiving notification of the act, was that the second mortgage had been sold to another administrator. However, he claims he never received a separate statement or bill until it was too late.

The consequence of this was that the unpaid mortgage loan reappeared with very high interest and fees that inflated the debt to more than double what was initially agreed. And although federal law requires lenders to send mortgage loan statements, many do not comply. The only solution offered to Mr. Arzate was that he had to pay the lump sum of the loan or leave the home.

Real estate agent Rich Szerman has stated that “all the mortgages that many homeowners thought were overcome come back to haunt them.” He assured that there are many similar cases to Jose’s in California. “Most homeowners even receive debt notifications after declaring bankruptcy, thinking that this way they canceled a minor lien or a second mortgage, or after a modification they thought included it. Sometimes, they receive letters saying the debt has been canceled and no further payments are necessary; however, the debt still exists.”

He also declared, “these debts are sold to vulture capitalists who demand full payment of the mortgage loan with accrued interest and penalties, and if homeowners do not pay, they are evicted from their homes.” He considers these actions unethical and immoral.

Due to the increase in these zombie mortgages that many states, especially California, are experiencing, and the high number of complaints being filed, the Consumer Financial Protection Bureau has taken action and stated that it is a situation entering a battle between the legal and the ethical because many collectors of these debts are skipping steps in the foreclosure process. Practices that are unnoticed and illegal.

Intercontinental Exchange Inc. (ICE) has been tracking this issue considering two parameters: loans 120 days delinquent or in default and involuntarily settled loans. Settlements, according to these service companies, include foreclosures and lenders canceling the debt as a loss or selling the property for less than owed.

Tracking data indicates that delinquent and settled second mortgages have increased and that several capitalists are resurrecting many mortgages that were agreed upon in 2006 and 2007.

It is important to note that zombie debts are not limited to mortgage loans. They can also fall on student loans, medical bills, and car loans that have remained inactive until a new administrator reactivates them.

One way consumers can protect themselves, the CFPB clarifies, is by periodically checking credit reports for liens or unknown debts. And if a suspicious bill appears, they should not make the payment immediately. Instead, they should consult with a lawyer or a local legal aid group to make the necessary claims.

Available Foreclosure:

Santa Maria, California: 15 homes available.
Inglewood, California: 22 homes available.
Los Angeles, California: 35 homes available.

By Elias DaSilva | September 19, 2024.