What is a “Zombie” Second Mortgage?

By Patricia Ellams, Foreclosure Specialist at The Waterfront Project

Zombie Mortgage Loan foreclosures are on the rise in New Jersey. If you’ve recently discovered a
long-forgotten second mortgage or Home Equity Line of Credit coming back to haunt you, it’s important to understand your rights.

Can I Lose My Home to a Zombie Mortgage?

Yes, it’s possible to lose your home due to a zombie mortgage foreclosure. A zombie mortgage is a mortgage that had been in default and has been dormant for several years. This is most likely because the property value had been too low to pay off the first mortgage and leave anything for the second (now Zombie) mortgage. In many of these cases, the borrowers believed that the loan had rolled into a modification of the first mortgage or resolved some other way.

Now that property values have increased, these loans have come back to life. If they are not defended, these foreclosures will cause homeowners to lose their homes or be forced to pay interest and fees that accrued during the time the loans had been dormant.

How to Fight a Zombie Mortgage

Zombie Mortgage foreclosures often seek to collect interest and fees that accrued during the time the loans had been dormant. It is possible to bring claims and defenses under the New Jersey Consumer Fraud Act (NJCFA), The Truth in Lending Act (TILA) and The Fair Debt Collection Practices Act (FDCPA) to prove that the Zombie Mortgage is seeking to violate the law in their attempt to collect. Taking prompt action, especially with legal guidance, can be crucial in effectively managing a zombie mortgage to prevent unexpected financial consequences.