Zombie Mortgage
Yep, you heard it right, there is a thing called a zombie mortgage. What is a zombie mortgage, and how does it affect not only the borrower but also the real estate market in general?
Definition of Zombie Mortgage
A zombie mortgage is a loan that was placed on a property a very long time ago—could have been 15, 20 years ago—and at some point, that mortgage was either foreclosed, it was a charge-off, sometimes it was a renegotiated or adjusted mortgage, and the borrower, the homeowner, figured that mortgage was done; it was over with, everything’s fine. The problem is there was never a lien release filed for that mortgage on the property records, and if there’s no lien release in the property records, even if the mortgage itself is paid off, charged off, written off, modified, or adjusted, it doesn’t matter.
Difference Between Loan and Mortgage
The loan and the mortgage are two different things. The loan is the debt—you owe money to the bank. The mortgage is the lien against your property, and even if that mortgage is supported by an underlying loan that is already paid off or cleared, if the lien is not removed from that property record, that property is still encumbered; it’s still unable to be sold or refinanced.
Potential Consequences of Zombie Mortgages
Here’s what can happen: some debt collector can come up later and say, “Hey, wait a minute, there’s still a mortgage on this property; we’re going to try to collect this debt.” And for many borrowers and homeowners, that’s what’s happening. There are debt collectors that are now coming out of the woodwork, contacting homeowners, saying, “We have a mortgage on your house; you owe us money,” and they have tacked on interest, penalties, fees, and all kinds of extra charges.
Other Types of Zombie Debts
Now, one thing to keep in mind—this isn’t just mortgages; this could be car loans, title loans, it could even be judgments, lawsuit judgments from litigation. Any old debt, any old loan that has some type of lien recorded somewhere—recorded in the property records, recorded in title records, recorded on the county clerk records for litigation—those liens are now coming back out of the woodwork and affecting people.
The Importance of a Lien Release
So how do you deal with it? Well, the important thing is to get a lien release. The lien release can be issued from the original lender, the original creditor, whatever collection agency, whatever subsequent agency assignment. Sometimes banks merged or they got bought out or assumed. That new company cannot sign a lien release that the government agency will accept.
Example of Lien Release Process
For example, if you borrowed money from, let’s say, Ally Bank on a car loan, and they sold that loan to some XYZ Finance Company, your car loan is still going to say Ally Bank on the title record. So even if you pay off the new XYZ Finance Company, they can’t sign your lien release. That’s the bad news. The good news is Ally Bank no longer has any interest in your loan, so not only can they sign it, they’d be happy to sign it because they don’t have any interest in the vehicle.
Steps to Obtain a Lien Release
So, how do you get a lien release? Well, there’s a very specific process for this. You don’t want to try to do this by phone, by email, by text message, or any electronic means. The only way that has a chance of working is by mail, and it’s difficult, I know, it’s more tedious than doing it by email, but here’s what you do. You want to prepare the exact documents for lien release that you want that lien holder to sign.
Preparing Documents for Lien Release
You don’t want to leave it up to them because at that lender, whether it’s a mortgage company, whether it’s a creditor on a lawsuit judgment, litigant, or a car loan company, they do not have people sitting around whose job is to do lien releases. Every person in that company has a full-time job doing something else that they don’t want to interrupt by doing something that doesn’t really benefit them.
Assembling the Document Package
So, what you do is you prepare a package of documents. Here’s one that we prepare for car titles, and you prepare all the documents that are needed to release that car title loan—the lien release, the letter of non-interest, the affidavit of facts, the declaration—put all that stuff in a package of documents already filled in with all the vehicle information.
Process for Real Estate Lien Release
If it’s for real estate, you put in the lien release for the legal description, and you print it 100%. You put little arrow stickers where you want the person to sign, and you mail it to that creditor. Postal mail—don’t email it, fax, text, PDF, DocuSign, anything. You want paper documents, and when you send it to them, also put in a return envelope so that once they sign it, they can send it back.
The Importance of Return Envelopes
Why do you do that? Well, most people, companies these days, they don’t have envelopes and stamps laying around; everything’s electronic. So, they might have to go to the mailroom to get a stamp, and by the time they do that, they’re going to say, “I’m just going to throw it away, see you, I don’t want to have the hassle.” So, make it easy for them—put a return envelope with your name and address and a stamp so they can send it back.
Privacy Concerns and Mailing Strategy
Now, if you’re worried about that lender knowing where you live, that’s fine; you can use a cutout address—we have a service for that you can link below—so it can be private so they don’t know exactly where you live. Now, so that way they can’t pass along to collection agencies. In addition to that, you want to mail it to multiple locations—find four or five different office addresses for that creditor, main address, local branch, processing address, send it to all five. All you need is one to come back.
The Likelihood of Getting a Lien Release
And remember, some clerk, administrative person, is going to get that package; they’re going to look up your file, they’re going to say, “Oh, this was a charge-off, this was a write-off, this was something we assigned to another lender,” and they’re going to sign it more than likely. The fact is, if you ever want that lien to come off of your mortgage, to come off of your title record, to come off of your vehicle, to come off of your deed, to come off of your civil court litigation, you have to get it signed. If you don’t get it signed, it’ll never come off, so you have to at least try, right?
Final Thoughts on the Lien Release Process
There’s no other way to do it. The lender normally will sign it; there’s no guarantee they will, but if you make it easy for them, most of the time they want to just to get it off their desk. And many times, they realize that because of the fact that it’s a charge-off or a write-off, they’re not allowed to retain the rights against the title. They may still have collection rights, but they don’t have rights against the title.
Legal Disclaimer
Now, remember, we’re not attorneys; we’re not giving you legal advice, but you may want to get advice from an attorney if you want to proceed further with this. In addition to that, one of the other most important things to keep in mind is that only the original creditor can sign a form that clears that loan from, or that mortgage or lien from, the record.
Limitation of New Creditors
If it’s been assigned or some new company’s contacting you, they can’t sign it because their name is not the official one on the record. If there’s a lien showing on your title for your deed, for your house, and it says XYZ Bank, only XYZ Bank can sign to make it go away. Some other bank they sold the loan to can’t sign it unless you have all the documents that show that they assigned it, which you probably won’t have.
Proactive Steps to Clear Liens
Make sure that you take advantage of this. If you haven’t been contacted by any creditors, still look into having these things cleared before the creditors contact you. Also, we recommend not sending any money to creditors unless they’re agreeing to sign these off.
Three Key Takeaways
The three takeaways from this are: request the lien release in writing; don’t try to do it by phone—you won’t get anybody to help you by phone. Send to multiple locations and put a return envelope. We send out hundreds of these every week. We want to give you the resources for your know-how to be able to get the best results.
The Necessity of Written Documentation
If you try to do it by phone, you’re not going to get anybody that can help you. Even if they agree to do it, that person can’t do anything on the phone to help you; it has to be in writing and documented. There are no people sitting around at companies that have this job, so it’s going to be somebody who has another job that’s going to have to drop what they’re doing, so make it easy for them to do.
Conclusion: Importance of Lien Clearance
Then once you get that lien cleared, that lien release, you can sell your car, sell your house, get another mortgage, whatever the case might be. It’s very common—a lot of these are popping up out of the woodwork, especially with the economy the way it is.
