Due to increasing property values, homeowners may be unexpectedly confronted with a long-forgotten second mortgage. Called “Zombie Second Mortgages,” these debts (and their lenders) are suddenly reappearing and threatening to take everything.
What Are Zombie Second Mortgages?
In New Jersey, a “zombie second mortgage” refers to a second mortgage that was thought to be satisfied, included in a work-out with the first mortgage or forgiven, but “comes back to life” years later to haunt the homeowner.
Lenders may attempt to collect several years’ worth of interest by threatening to take the house through a “zombie” foreclosure, even though no monthly mortgage statements have been received for several years.
How Does a Second Mortgage Foreclosure Work?
The foreclosure process for a second mortgage follows legal proceedings similar to those for a primary mortgage foreclosure. If the homeowner defaults on the second mortgage, the holder of this lien can initiate foreclosure, even if the homeowner is current on the first mortgage. However, if the property goes to Sheriff Sale, the new owner will take title subject to the first mortgage. Second Mortgages are usually foreclosed only when the property is worth more than what is owed on the first mortgage.
Ways NJ Homeowners Can Fight Off Zombie Second Mortgage Foreclosures
NJ Homeowners have several strategies at their disposal to combat zombie second mortgage foreclosures, including the following:
- Negotiate a Settlement: Often, lienholders are willing to accept a lump sum payment to satisfy the debt.
- Loan Modification: Lenders will often agree to a modification if the homeowner is willing to agree that they will pay the interest and fees that have been added to the loan.
- Legal Defense: Engage a foreclosure attorney to explore legal defenses.
Our office takes a very aggressive approach to defending Zombie Second Mortgages. In most instances, The Truth In Lending Act (TILA) requires that mortgage borrowers be provided with a periodic statement (monthly mortgage statements) for each billing cycle unless the loan has been charged off, and no additional fees or interest will be charged on the account. See 15 U.S.C. § 1638(f), 12 C.F.R. § 1026.41. This means that if the debt has been charged off, they are not permitted to charge interest and fees during the time that no statements are being sent. However, in Zombie Second Mortgage Foreclosures, lenders are trying to collect interest and fees during the time when they are not sending monthly mortgage statements.
In cases where our clients are being improperly charged interest and fees during the time when no monthly mortgage statements are being sent, we file a counterclaim against the lender for violating the NJ Consumer Fraud Act (NJCFA). We argue that it is an unconscionable business practice for a lender to be “lying in wait” and charging interest and fees without giving any notice. In addition, there may also be claims under the Fair Debt Collection Practices Act (FDCPA) against debt collectors seeking to collect amounts that are not due.
In New Jersey, the second mortgage foreclosure process usually involves the following key steps:
- Missed Payments: Typically, after missing several mortgage payments, the lender sends a notice indicating the default.
- Notice of Intention to Foreclose: Lenders must send borrowers a notice at least 30 days before filing a foreclosure complaint detailing the default and the borrower’s rights.
- Filing of Complaint: If the homeowner doesn’t cure the default, the lender can file a foreclosure complaint with the court. Once served, the homeowner has 35 days to respond.
- Court Proceedings: If contested, the process may extend to include discovery, motions, and possibly a trial. If uncontested, or after a court ruling in favor of the lender, a final judgment of foreclosure can be issued.
- Judgment and Sale: If there’s no response or the court rules in favor of the lender, a foreclosure judgment will be entered, and then a sheriff’s sale will be scheduled.
For further information, look at our Foreclosure Timeline or Comprehensive Guide to New Jersey Foreclosure Notices.
Facing a zombie second mortgage can be a distressing experience, but understanding these key aspects and exploring available strategies can empower homeowners to protect their property and financial future.
Contact Us for Help with Zombie Second Mortgages
I offer aggressive representation, and my goal is to have the lender remove interest and fees and provide a modification at a reduced interest rate. If you are facing collection or foreclosure from a zombie second mortgage, contact the law office of Ira J. Metrick today to discuss your options.
