Aug 6, 2024
Teresa, a Los Angeles single mother, had never heard of Statebridge Company until January of this year when she received a letter stating she owed them $180,000.
The notification said she needed to make an initial payment of $50,000 or risk losing her home. The culprit? An old second mortgage she thought she’d paid off years ago.
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As she told CBS In 2009, Teresa (who asked that her last name not be used) modified her mortgage loan after a divorce and said she never received a monthly statement for her second mortgage. She just assumed it had been rolled into her primary mortgage payment.
“It’s beyond scary,” she said. “To know that there might be a moment where we may have to move. And given the real estate prices and the rental prices in southern California … I can’t afford to live in California anymore if I can’t stay in my current home.”
Teresa tried to negotiate with the company but says Statebridge is currently refusing to negotiate on the 15-year-old debt.
Thousands of homeowners at risk
Teresa is one of a growing number of Americans facing so-called zombie mortgages, or second mortgages that resurface after borrowers think they've paid them off. These mortgages are often sold to debt collectors, who demand payment months or years later — often with retroactive interest and fees tacked on.
Many of those borrowers, like Teresa, thought the loans were resolved years ago and received no communication that the loans were still active.
“When I looked at this, and I, I mean, I didn't recognize it. I didn’t know what it was from,” Teresa told CBS News.
Teresa says between 2009 and January 2024, she never received a statement or communication about this debt. While federal law requires lenders to send statements for home loans, however, some don’t.
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And it’s a problem all across the country. An NPR investigation found at least 10,000 old second mortgages in New York with foreclosure activity in the last two years.
And in Maryland, NPR found at least 500 loans that had been in default and unpaid for more than a decade — but now a company has taken the first step toward foreclosure.
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How to find out if you have a zombie mortgage
First, it's important to understand that zombie mortgages are specifically second mortgages. These loans allow you to withdraw equity from your home and are often used for repairs, upgrades, or other large expenses. If you've never taken out a second mortgage, you don't have to worry about zombie mortgages.
If you have, start with your county’s public property records, which can often be accessed for free online. Googling your city or county with “public property records” should help you find the correct site.
Check if there’s a lien or notice of default on your property. If there is, you may have a problem. If you see a deed of reconveyance, the mortgage has likely been satisfied.
Another place to check is your tax returns. If the old mortgage was discarded, the lender would have sent you a 1099-C, often called a cancellation of debt. These tax forms must be included in your tax return, and indicate the second mortgage has been discarded.
If your property appears to have a zombie mortgage, it may be worth hiring a lawyer. Some states have laws that prevent debt collectors from taking action after a certain period of time. California, for example, has a four-year statute of limitations on most types of debt.
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Danielle is a personal finance writer based in Ohio. Her work has appeared in numerous publications including Motley Fool and Business Insider. She believes financial literacy key to helping people build a life they love.
