WHITE OAK, Pa. — A zombie mortgage is a second mortgage or home equity loan that consumers thought was paid off or settled in bankruptcy, until it comes roaring back to life.
Many of the loans date back to the housing crash of 2008, when lenders used a second mortgage to cover part of a home’s purchase price. The once “dormant” loans can be devastating for homeowners.
Kellie and Scott Schork have lived in their White Oak home for more than two decades. Their situation began when a sheriff’s deputy arrived at their door to deliver a sudden foreclosure notice for a debt the couple believed had been resolved years earlier. Facing total claims of $48,000, including principal, interest, and lawyer’s fees, the couple confronted the immediate threat of losing their home.
“You know, I’ve had nightmares. What are we going to do? Where are we gonna go?” said Kellie Schork, describing the initial shock of the foreclosure notice.
Consumer Adviser Clark Howard explained that dormant loans resurface when financial entities purchase old, unpaid second mortgages for a fraction of their original value.
“Because they are kind of like in suspended animation and people thought they were long dead and like a zombie came back to life,” Howard said. He noted that over the past two years, viewers have increasingly reported issues with private equity companies acquiring delinquent debt to pursue foreclosure. “They are looking at this as an opportunity to steal people’s homes and enrich the private equity house that they are from,” Howard said.
According to Howard, an unexpected drop in a credit score is often the first indicator that a dormant loan has been reactivated. A delinquent report on a second mortgage can cause a credit score to decline by as much as 100 points. Howard stressed the importance of tracking personal credit files through free resources such as annualcreditreport.com or credit monitoring services.
“If you’re not monitoring your credit reports, you need start right away,” Howard said. He added that automated score tracking provides an immediate warning if dormant debts are reported. “They’ll alert you when there’s a big movement in your score down that would happen...again, it’s almost like a burglar alarm going off,” Howard said.
To address the foreclosure proceeding, the Schorks used an Allegheny County program that granted a one-year delay in court proceedings, giving them time to gather the required funds to pay off the debt and protect their home. The outcome was critical for their long-term family planning. “We’re planning to leave the house to our children,” Kellie Schork said. “Since they are disabled, we’ll have the comfort of knowing that they’ll have a roof over their head when we leave the earth.”
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