Homeowners are being surprised with collection notices for amounts from ten or twenty years ago. Zombie mortgages are unpaid home loans that a homeowner thought had been discharged or foreclosed. This situation is usually the result of an incomplete or improper foreclosure process. Or the homeowner vacated the property believing it had been foreclosed.

These zombie mortgages often resulted from piggyback loans taken out previous to the 2008 financial crisis but also occur from any old, unpaid mortgage. A piggyback mortgage, also known as an 80/20 loan, is two loans in one – a primary loan for 80 percent of the purchase price, and a second loan for the other 20 percent. This allowed a homebuyer to finance 100 percent of the purchase.

When home values declined, many buyers were not able to make payments on one or both loans, resulting in foreclosure proceedings. Since many lenders stopped contacting borrowers, the homeowners assumed their loans were written off and no longer owed…until recently!! Now, lenders and debt collectors are attempting to collect on these loans.

Consider these actions to avoid difficulties associated with a zombie mortgage. Be informed about your mortgage situation and foreclosure status. Obtain legal guidance to finalize foreclosure proceedings. Communicate with the lender to confirm proper completion of foreclosure processes and to verify mortgage records for any unresolved issues. Finally, obtain assistance from the Consumer Financial Protection Bureau at https://www.consumerfinance.gov/

For additional information on zombie mortgages, go to:

Link #1

Link #2

Teaching Suggestions

• Have students search online for additional information on zombie mortgages and piggyback loans.
• Have students create a podcast that communicates the dangers associated with a zombie mortgage.

Discussion Questions 

1. What situations can result in a zombie mortgage?
2. Describe actions a person might take to avoid a zombie mortgage.