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For many Americans, the nightmare of the 2008 housing crisis faded as the housing market recovered in the following years, and became even less relevant as home values soared during the last years. But since then an ominous threat has resurfaced: “zombie mortgages”. These second mortgages, many of which were acquired in the lead-up to the housing crisis of the late 2000s, have become problematic for thousands of homeowners, with some now facing foreclosure of collections and foreclosures from creditors who say they are owed old money. home loans linked to properties.
These “zombie” debts often arise when a homeowner falls behind on mortgage payments and vacates the home, assuming the bank will proceed with the foreclosure. But with home values plummeting during the most recent housing crisis, many lenders holding delinquent mortgages chose not to take the final steps to foreclose and take legal possession. And now, seemingly out of the blue, homeowners are getting notices that they owe a remaining balance on those old mortgage loansplus accrued fees, penalties, taxes and maintenance fees.
Homeowners saddled with tens or hundreds of thousands of dollars in zombie mortgage debt can see their credit scores shattered and ruined finances, making it difficult to secure future housing, qualify for loans or, in some cases, even get hired for certain jobs. Foreclosure is also a real threat in these circumstances, as are repercussions such as wage garnishment and asset forfeiture. But while zombie mortgages are indeed a serious condition, there are ways around it pay off mortgage loan debt if you are dealing with this problem.
Compare the home equity options you have and start tackling your “zombie mortgage” debt now.
How to pay off your “zombie mortgage” now
If you're trying to get rid of a zombie mortgage, here are some of your best options for paying off what's owed on your home:
Pay off debt using your home equity
The average homeowner in the United States now has about $300,000 home heritage thanks to the rapid increase in property values over the past few years, and about $190,000 of that is value of exploitable housing. Borrowing that home equity can be a powerful financial weapon against zombie mortgage debt.
For example, if you have enough equity in your home, you can take advantage of it responsibly to cure delinquent mortgage payments before the foreclosure process goes too far. Or, if you're facing an existing “zombie mortgage,” you can use home equity funds to get a full payment to permanently eliminate the debt obligation once and for all.
You have a couple of good options for curing a zombie mortgage with your home equity: a home loan oh Home Equity Line of Credit (HELOC). And even today high rate environmentthese loan options may be more affordable than other types of loans, as the average home equity loan rate is currently 8.60%, while the average HELOC rate is just over 9%.
A home loan it works like a second mortgageproviding a lump sum of money at a fixed interest rate that is repaid over a fixed period of time. HELOCs are more flexible, acting as revolving lines of credit that can be drawn on as needed, with variable interest rates charged only on the outstanding balance. But either can be a smart way to access the cash you need to get rid of your mortgage debt and maintain your home ownership.
Find out how your home equity can help you get rid of your zombie mortgage loan.
Try to negotiate an agreement with the lender
In situations where the overall amount owed on the “zombie mortgage” seems questionable or unaffordable, it may be worth trying to negotiate a lump sum settlement with the mortgage holder. This is because creditors are often willing to accept a discounted payment figure for less than the total mortgage loan balance to close the file and recover at least part of what is owed, especially if the mortgage debt is old.
That said, this process often requires patience, skilled negotiation, and (ideally) some guidance from a real estate attorney or housing advisor. After all, the nuances of this type of negotiation, as well as the legalities involved in collecting this type of debt, can be confusing to a layman. But if successful, it could provide significant savings compared to paying the full “zombie mortgage” amount to keep your home.
Challenge the validity of the “zombie mortgage” debt.
There are cases where zombie mortgage claims will be inaccurate, whether they contain incorrect information, excessive fees, or amounts that simply aren't legitimate. Or, in certain situations, a former owner's debt, rather than the current owner's, may be tied to a lien on the property.
In these scenarios, owners have the right under federal law to issue a formal written dispute requesting validation and supporting evidence for any questionable charges. If the lender is not able to provide adequate documentation to prove that the entire debt is accurate and due, it may be possible for some or even all of the “zombie mortgage” to be settled through this dispute process. Therefore, it may be worth disputing the debt if there are doubts about whether it is collectable or valid, as it could result in paying much less (or nothing) of the old mortgage debt.
Bankruptcy protection file
When all other options for solving a zombie mortgage have been exhausted and the debt is overwhelming, declaration of bankruptcy can serve as a measure of last resort to fulfill the obligation. Both Chapter 7 and Chapter 13 personal bankruptcy filings can potentially eliminate mortgage debts through the courts.
However, it is important to consult an experienced bankruptcy attorney first, as this solution has detrimental credit consequences and loan limitations which can persist for years. In most cases, bankruptcy should only be pursued if there are simply no other viable avenues to resolve the “zombie mortgage.”
The bottom line
Although “zombie mortgages” represent a truly threatening financial condition, the situation is not hopeless if you are proactive in exploring all available remedies. By using strategies like tapping home equity, negotiating affordable solutions, or even considering bankruptcy when necessary, you can reduce those debts for good and regain control of your future home.
