The Expert Podcast

Yep, you heard it right—there is a thing called a zombie mortgage. What is a zombie mortgage, and how does it affect not only the borrower but also the real estate market in general?

A zombie mortgage is a loan that was placed on a property a very long time ago, possibly 15 or 20 years ago. At some point, that mortgage was either foreclosed, charged off, or sometimes renegotiated or adjusted. The borrower or homeowner might have figured that the mortgage was done, over with, and that everything was fine.

The problem is, there was never a lien release filed for that mortgage on the property records. If there’s no lien release in the property records, even if the mortgage itself is paid off, charged off, written off, modified, or adjusted, it doesn’t matter. The loan and the mortgage are two different things. The loan is the debt—you owe money to the bank. The mortgage is the lien against your property. Even if that mortgage is supported by an underlying loan that is already paid off or cleared, if the lien is not removed from that property record, the property is still encumbered. It’s still unable to be sold or refinanced.

Here’s what can happen: Some debt collector can come up later and say, “Hey, wait a minute, there’s still a mortgage on this property. We’re going to try to collect this debt.” For many borrowers and homeowners, that’s what’s happening. There are debt collectors now coming out of the woodwork, contacting homeowners, saying, “We have a mortgage on your house; you owe us money,” and they’ve tacked on interest, penalties, fees, and all kinds of extra charges.

Now, one thing to keep in mind—this isn’t just about mortgages. This could be car loans, title loans, or even judgments, lawsuit judgments from litigation. Any old debt, any old loan that has some type of lien recorded somewhere—recorded in the property records, recorded in title records, or recorded on the county clerk records for litigation—those liens are now coming back out of the woodwork and affecting people.

So, how do you deal with it? The important thing is to get a lien release. The lien release can be issued from the original lender, the original creditor, or whatever collection agency or subsequent agency assignment. Sometimes banks merged, or they got bought out or assumed. That new company cannot sign a lien release that the government agency will accept.

For example, if you borrowed money from, let’s say, Ally Bank on a car loan, and they sold that loan to some XYZ Finance Company, your car loan is still going to say Ally Bank on the title record. Even if you pay off the new XYZ Finance Company, they can’t sign your lien release. That’s the bad news. The good news is that Ally Bank no longer has any interest in your loan, so not only can they sign it, they’d be happy to sign it because they don’t have any interest in the vehicle.

So, how do you get a lien release? Well, there’s a very specific process for this. You don’t want to try to do this by phone, email, text message, or any electronic means. The only way that has a chance of working is by mail, and it’s difficult, I know. It’s more tedious than doing it by email, but here’s what you do: You want to prepare the exact documents for the lien release that you want that lien holder to sign.

You don’t want to leave it up to them because at that lender—whether it’s a mortgage company, a creditor on a lawsuit judgment, a litigant, or a car loan company—they do not have people sitting around whose job is to do lien releases. Every person in that company has a full-time job doing something else that they don’t want to interrupt by doing something that doesn’t really benefit them.

So, what you do is prepare a package of documents. Here’s one that we prepare for car titles. You prepare all the documents that are needed to release that car title loan—the lien release, the letter of non-interest, the affidavit of facts, the declaration. Put all that stuff in a package of documents already filled in with all the vehicle information.

If it’s for real estate, you put in the lien release for the legal description, and you print it 100%. You put little arrow stickers where you want the person to sign, and you mail it to that creditor via postal mail. Don’t email it, fax it, text it, PDF it, or DocuSign it—anything. You want paper documents. When you send it to them, also put in a return envelope so that once they sign it, they can send it back.

Why do you do that? Well, most companies these days don’t have envelopes and stamps lying around—everything’s electronic. So, they might have to go to the mailroom to get a stamp, and by the time they do that, they’re going to say, “I’m just going to throw it away because I don’t want to have the hassle.” So, make it easy for them. Put a return envelope with your name and address and a stamp so they can send it back.

Now, if you’re worried about that lender knowing where you live, that’s fine—you can use a cutout address. We have a service for that, which you can link to below so it can be private, and they don’t know exactly where you live. That way, they can’t pass along your information to collection agencies.

In addition to that, you want to mail it to multiple locations. Find four or five different office addresses for that creditor—main address, local branch, processing address. Send it to all five. All you need is one to come back. Remember, some clerk or administrative person is going to get that package, look up your file, and say, “Oh, this was a charge-off; this was a write-off; this was something we assigned to another lender,” and they’re going to sign it more than likely.

The fact is, if you ever want that lien to come off your mortgage, to come off your title record, to come off your vehicle, to come off your deed, to come off your civil court litigation, you have to get it signed. If you don’t get it signed, it’ll never come off, so you have to at least try, right? There’s no other way to do it.

The lender normally will sign it—there’s no guarantee they will—but if you make it easy for them, most of the time they want to, just to get it off their desk. Many times they realize that because it’s a charge-off or a write-off, they’re not allowed to retain the rights against the title. They may still have collection rights, but they don’t have rights against the title.

Now, remember, we’re not attorneys, and we’re not giving you legal advice, but you may want to get advice from an attorney if you want to proceed further with this. In addition, one of the other most important things to keep in mind is that only the original creditor can sign a form that clears that loan, mortgage, or lien from the record.

If it’s been assigned, or some new company is contacting you, they can’t sign it because their name is not the official one on the record. If there’s a lien showing on your title for your deed for your house and it says XYZ Bank, only XYZ Bank can sign to make it go away. Some other bank they sold the loan to can’t sign it unless you have all the documents that show that they assigned it, which you probably won’t have.

Make sure that you take advantage of this. If you haven’t been contacted by any creditors, still look into having these things cleared before the creditors contact you. Also, we recommend not sending any money to creditors unless they’re agreeing to sign these off. The three takeaways from this are:

Request the lien in writing—don’t try to do it by phone; you won’t get anybody to help you by phone.
Send to multiple locations.
Put a return envelope.
We send out hundreds of these every week. We want to give you the resources to be able to get the best results. If you try to do it by phone, you’re not going to get anybody that can help you. Even if they agree to do it, that person can’t do anything on the phone to help you—it has to be in writing and documented.

There aren’t people sitting around at companies whose job is to do this, so it’s going to be someone who has another job who’s going to have to drop what they’re doing. Make it easy for them to do this. Then, once you get that lien cleared, that lien release, you can sell your car, sell your house, get another mortgage, or whatever the case might be.

It’s very common—a lot of these are popping up out of the woodwork, especially with the economy the way it is. If you do have other questions, you can click the link below for a consultation with a title agent or an investigator, or we have services available if you would like assistance with that documentation.

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.