What are Zombie Mortgages?
So what are zombie mortgages? Zombie mortgages are a type of loan which has been presumed to long been dormant but is now popping back up. That’s why they call it zombie. This goes for mortgages, it goes for car loans, it goes for judgment debts, and a lot of other kinds of debts. Liens and judgments can be zombie related.
How Do Zombie Mortgages Work?
So how exactly does it work? Let’s say you had a loan against you many years earlier. It could be a car loan, a second mortgage, a home equity loan, or a judgment lawsuit—something that was against you that was a debt. After some period of time, maybe it was a charge-off, maybe it was shown as a write-off for that lender, maybe you received some type of IRS notice that it was a write-off and you have to pay taxes on it. Maybe the debtor or the lender told you that we wrote off the debt and they’re not collecting it. Maybe it was a vehicle and the lien holder said we don’t want the car back. There are a number of scenarios. It might have been a lawsuit where the plaintiff against you stopped collecting, and that may have been 5, 10, or more years ago. You may have been told it was a write-off or a charge-off, and now all of a sudden it’s showing back up again and it’s affecting you, your credit. Maybe they’re collecting money from you, maybe they’re filing foreclosure on your house, maybe there’s a lien on your title. These are things that you thought were long past, and now it’s showing back up against your current day finances.
Understanding the Implications
So how does that work? Well, depending upon what originally happened, people might say charge-off or write-off. It doesn’t necessarily mean the debt is gone. It means that the lender took it off their balance sheet as an asset because they could no longer consider it to be a valid asset to their financial statement. They may have filed it against your taxes saying that it’s a windfall to you because we’re forgiving this debt. It may have been a foreclosure that started and then at some point was dismissed. It may have been a car loan that was out for repo and then it was canceled, and now some debt collector is coming back and saying you owe us the money.
What To Do Next
So what do you do? Well, what you do then, or even if this hasn’t shown up again, maybe something you want to do in advance of this is what’s called a lien release request. Now, remember, we’re not attorneys. We’re not giving you legal advice. We’re not providing you with attorney-client type representation. We are a certified civil court mediator and a licensed private investigator, so that’s where our suggestions come from. Remember, before you take any actions, you want to make sure that you’re doing things legally, you get good advice, and you make sure that you’re not doing anything that’s going to make the problem worse for you.
Getting the Lien Release
What you want to do is get something in writing, whether it’s from the lien holder, a registered agent, or a magistrate, that clears that debt from you so it’s no longer encumbering your vehicle. It clears the lien off your vehicle. You want to get it off of any property you have. If it’s a judgment debt, in most counties, if that judgment is filed in the county, it stays in that county’s records forever. Any real estate you own, any UCCs you have, it files against them.
The Role of Debt Buyers
So how do you do that? Well, the original creditor, the original person you owed the money to, has probably long since sold that debt to some collection agent, debt collection company, and they sold it very cheap. Pennies on the dollar, the typical going rate is four or five cents on face value. So if you owed somebody $1,000, they might have paid $40 for that debt, $50, and they sit on it for years and years and years, and then they come back and they try to collect from you not only that debt but the accumulated accrued interest that happened during that time, and they might even charge late fees and a bunch of other stuff. Some of that may not be legal. Even collecting the debt later may not be legal.
Legal Considerations
There may have been a statutory period of time after which they can’t collect the debt. Either way, the original creditor, the original bank or finance company, or lender, or even the original judgment plaintiff probably sold that debt a long time ago. So they have really no interest in it. They can’t even collect it anymore because they sold it. So what you want to do is send a particular package of documents to that person requesting them to clear this from your record. The reason they’re going to want to do that is because in most cases, if they have sold it or they did a charge-off or a write-off, by law they may not be able to maintain a debt against you. Again, we’re not attorneys, but there have been many cases where if somebody did a charge-off or write-off, they can no longer claim it as a valid asset to themselves. If they already sent you a tax 1099, they may not be able to do it either way. They may not know exactly where they stand. So if you send them the right package of paperwork saying we want you to clear this off so it doesn’t do any more damage or liability, they have nothing to lose because they’re not going to get any money anyway. The money doesn’t go to them. The collection agency gets the money, and they are the ones whose name is on the debt.
Practical Steps for Resolving Zombie Debt
If you have a car loan that’s a zombie car loan, the name on the title record is the original creditor, not the collection agent. So the creditor is the one that has to sign off on it. Even if the collection agency, if you pay them in full, can’t clear that loan, they can’t do a lien release because their name is not on it. A mortgage lender, if they’ve sold the debt, the name on the mortgage note, the deed of trust in the land records, is the original lender, not the collection agent. So they’re the ones that have to clear it. If they don’t clear it, it might be a case of what’s called slander of title, meaning that they’re encumbering your property, making your property less valuable on a debt that they’re no longer able to claim as a valid asset to sell.
Protecting Your Privacy and Assets
This is something that’s very important. If you do have a lien out there you’re worried about, this is one way to preclude it showing up. If it has shown up, it might be a way because the original creditor didn’t send you this debt collection, it’s some agency. So it might be a way to nip that in the bud. Also, with judgment debts, you don’t want that to be out there getting renewed every five years to where you still owe it. So a lien release is a way to clear this off so this zombie debt, this zombie loan, this zombie mortgage doesn’t come back to try to haunt you. Just like zombies in a movie, they come back and they try to eat you when they’re dead. You don’t want that to happen to your finances.
