The Expert Podcast

So what are zombie mortgages?

Zombie mortgages are a type of loan that has long been presumed dormant but is now popping back up—that’s why they call it a zombie. This goes for mortgages, car loans, judgment debts, and a lot of other kinds of debts. Liens and judgments can be zombie-related.

So how exactly does it work?

Let's say you had a loan against you many years earlier. It could be a car loan, a second mortgage, a home equity loan, or a judgment lawsuit—something that was against you and was a debt. After some period of time, maybe it was charged off, maybe it was shown as a write-off for that lender, or perhaps you received some type of IRS notice that it was a write-off and you had to pay taxes on it. Maybe the debtor or the lender told you that they wrote off the debt and they're not collecting it. It might have been a vehicle, and the lienholder said they didn’t want the car back. There are a number of scenarios: it might have been a lawsuit where the plaintiff against you stopped collecting. That may have been 5, 10, or more years ago. You may have been told it was a write-off or a charge-off, and now, all of a sudden, it's showing back up again, affecting your credit. Maybe they’re collecting money from you, filing foreclosure on your house, or putting a lien on your title. These are things that you thought were long past, and now they’re showing back up against your current day finances.

So how does that work?

Well, depending upon what originally happened, people might say charge-off or write-off, but that doesn’t necessarily mean the debt is gone. It means that the lender took it off their balance sheet as an asset because they could no longer consider it a valid asset to their financial statement. They may have filed it against your taxes, saying it was a windfall to you because they’re forgiving this debt. It may have been a foreclosure that started and was later dismissed, or a car loan that was out for repossession and then canceled. Now, some debt collector is coming back and saying you owe them the money.

So what do you do?

What you do, then—or even if this hasn't shown up again but it’s something you want to do in advance—is what's called a lien release request. Now, remember, we’re not attorneys; we’re not giving you legal advice or providing you with attorney-client representation. We are a certified civil court mediator and a licensed private investigator, so that’s where our suggestions come from. Remember, before you take any actions, you want to make sure that you’re doing things legally, getting good advice, and ensuring that you’re not doing anything that will make the problem worse for you. What you want to do is get something in writing, whether it’s from the lienholder, a registered agent, or a magistrate, that clears that debt from you so it’s no longer encumbering your vehicle. It clears the lien off your vehicle; you want to get it off any property you have. If it’s a judgment debt, in most counties, if that judgment is filed in the county, it stays in that county’s records forever, and any real estate you own or UCCs you have, it files against them.

So how do you do that?

The original creditor, the original person you owed the money to, has probably long since sold that debt to some collection agent or debt collection company, and they sold it very cheap—pennies on the dollar. The typical going rate is four or five cents on face value, so if you owed somebody $1,000, they might have paid $40 or $50 for that debt. They sit on it for years and then come back and try to collect from you, not only that debt but also the accumulated accrued interest and possibly even late fees and other charges. Some of that may not be legal; even collecting the debt later may not be.

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There may have been a statutory period of time after which they can’t collect the debt.
Either way, the original creditor, the original bank or finance company, lender, or even the original judgment plaintiff, probably sold that debt a long time ago. They have no interest in it anymore; they can’t even collect it because they sold it. What you want to do is send a specific package of documents to that person requesting them to clear this from your record. The reason they might want to do that is because, in most cases, if they’ve sold it or did a charge-off or write-off, by law, they may not be able to maintain a debt against you. Again, we’re not attorneys, but there have been many cases where if somebody did a charge-off or write-off, they can no longer claim it as a valid asset to themselves. If they already sent you a tax 1099, they may not be able to do it either. They may not know exactly where they stand. So, if you send them the right package of paperwork, saying, “We want you to clear this off so it doesn’t cause any more damage or liability,” they have nothing to lose because they’re not going to get any money anyway—the money doesn’t go to them. The collection agency gets the money, and they are the ones whose name is on the debt.

If you have a car loan that’s a zombie car loan, the name on the title record is the original creditor, not the collection agent.
So the creditor is the one who has to sign off on it. Even if you pay the collection agency in full, they can’t clear that loan; they can’t do a lien release because their name isn’t on it. If a mortgage lender has sold the debt, the name on the mortgage note—the deed of trust in the land records—is the original lender, not the collection agent, so they’re the ones who have to clear it. If they don’t clear it, it might be a case of what’s called slander of title, meaning that they’re encumbering your property, making it less valuable on a debt they can no longer claim as a valid asset. These are the kinds of gray areas where they may not want to create liability for themselves. Either way, what you want to do is send a very specific package to that creditor. You can see the link below—lienrelease.com—for more information on the specifics of it.

You don’t want to do it by phone, text, email, or social media.
The only way to do it is with a package of paperwork. If you call them up now, somebody has to figure out what paperwork to create. If they have to do the work, they’re never going to do it. You want to do all the work—you want to get the paperwork you need, send it to them with a little arrow sticker indicating where to sign, and include a return envelope for them to send it back. You may want to use a cutout or mail forwarding because if you have them send it back to you personally, they may know where you live and might be able to file liens, repossess a vehicle, or garnish your paycheck. You may want to use a cutout, and that’s one of the services we offer at Lien Release, to ensure that your private information is not disclosed to them initially and directly.

This is very important.
If you have a lien out there that you’re worried about, this is one way to prevent it from showing up. If it has shown up, it might be a way to deal with it because the original creditor didn’t send you this debt collection—it was some agency. This might be a way to nip that in the bud. Also, with judgment debts, you don’t want them out there getting renewed every five years, leaving you still owing it. A lien release is a way to clear this off so this zombie debt, zombie loan, or zombie mortgage doesn’t come back to haunt you. Just like zombies in a movie, they come back and try to eat you when they’re dead—you don’t want that to happen to your finances. Consider the instructions we give you at Lien Release, or we have a service that can assist with clearing this off before it becomes a bigger problem.

If you found this video helpful, be sure to click on other videos on our channel to see if there’s further information that could give you more insight into resolving your particular situation.