Your daily adult tube feed all in one place!
Nurse shocked to find family home of 17 years sold behind her back - due to mysterious loophole that could affect vast numbers of Americans
So-called 'zombie mortgages' are coming back to life across the US as home prices rise, experts are warning.
In the run up to the housing crash in 2008, millions of Americans took out second mortgages on their homes that they then defaulted on during the crisis.
Lenders didn't pursue foreclosure because the home price crash made it unlikely they would recoup the money. Homeowners often assumed the debt was cancelled.
But these dormant loans are now coming back to life - hence the term 'zombie mortgage'.
The forgotten mortgages had been bought for pennies on the dollar by debt collectors who have patiently waited for house prices to rise to record levels - to make it worthwhile chasing the money.
Now, having tacked on retroactive fees and interest, they are coming to collect the money, and this often means foreclosing on the homes to grab a huge slice of the rise in value.
Karen McDonough, from Quincy, Massachusetts, believed her second mortgage had been written off. That was until she stumbled into a foreclosure auction on her front lawn.
Karen McDonough, from Massachusetts, believed her second mortgage had been written off
McDonough stumbled into a foreclosure auction on her front lawn having fallen victim to a 'zombie mortgage'
McDonough, a registered nurse, had owned the house for 17 years, she told NPR, as part of a recent investigation into zombie mortgages.
She had raised two children in the house and was paying off her mortgage every month.
When she had purchased the property in 2005, she had taken out a 80/20 loan, which meant she had two mortgages - one covering 80 percent of the value of the home and another covering the remaining 20 percent.
But two years later, her first mortgage adjusted and the monthly payments were suddenly $700 a month higher.
A year later, McDonough was able to get her loan modified to lower the interest rate and make it affordable again.
She said her mortgage company told her that as part of the modification, the second mortgage had been forgiven.
She stopped getting statements on the second mortgage and assumed it was dead.
Fast forward to 2022 when a group of men were gathered on her driveway for a foreclosure auction.
McDonough had been receiving phone calls demanding money, but had thought it was a scam.
She claims she was also told by her first mortgage company to ignore the calls as it was most likely fraud.
The men on the lawn were telling her: 'This is a foreclosure. You are going to lose this house,' McDonough told NPR.
It turned out her second mortgage had been sold off to a company within a batch of 600 others, rather than being written off as she had thought.
A few months after the auction, she got an orange eviction notice posted on her front door.
McDonough is still living in her home and has filed a lawsuit which alleges the company which bought up her second mortgage then used unfair and deceptive practices to foreclose on her home.
'I feel like what happened was a terrible thing,' McDonough told the outlet.
'But I'm still really hopeful that I'm going to stay in my home. I'm really hopeful I'm going to win this case.'
One key detail that may be used against debt collectors is that in many cases they are adding years' worth of interest and late fees on top of the amount the homeowner initially borrowed.
While companies are allowed to do this under federal regulations, they have to send monthly statements to the homeowner detailing the added costs.
In many cases like McDonough's, homeowners did not receive any information about the loans for years.
And she is by no means alone.
In New York, NPR found at least 10,000 old second mortgages that foreclosure activity had been initiated on in just the last two years. The loans originated back to during the sub-prime-lending housing bubble of 2004 to 2008.
It also found at least 500 old second mortgages in Maryland where steps towards foreclosure had been taken.
'The numbers to me are very scary,' Andrea Bopp Stark, an attorney at the National Consumer Law Center, told the outlet.
The problem is feared to be widespread across America.
'If you're looking at the number of these foreclosure filings, or at least the attempts to collect on this zombie debt, you're starting to see the numbers tick up dramatically into the thousands, if not more, in individual jurisdictions,' David Weber, a professor at the Creighton University School of Law told The New York Times.
'That's a lot of activity.'
He attributed the increased attention in zombie mortgages to the rise in home prices.
Rising property values build equity into a property, enabling a secondary mortgage holder to make money even after the first mortgage holder is paid, Weber said.
The cost of homeownership has spiraled in the last decades
After the housing crash in 2008, millions of Americans took out second mortgages on their homes which debt collectors are now taking advantage of
This is because when a house with two mortgages gets foreclosed on, the loans are in waiting to get paid back.
If it sells, the first mortgage takes the money needed to cover the debt, and what is left goes towards the second mortgage.
When prices collapsed in 2008, second mortgages seemed worthless in many cases, NPR reported.
But now that prices have risen, if a house gets foreclosed on, there is enough money to pay off both mortgages.
In McDonough's case, her home's value had rocketed from $365,000 in 2005 to more than $600,000.