Thousands of Americans are at risk of receiving demands to repay money they may not actually owe because of “zombie mortgages,” according to a new Bloomberg News investigation that published Monday.
Zombie loans are second mortgages that many Americans took out to purchase homes during the run-up to the 2008 financial crisis. When the housing market collapsed, some banks gave up trying to collect on these smaller loans. They stopped sending statements, ceased reporting the loans to credit bureaus, and wrote down the debts or canceled them entirely. As the housing market came roaring back, however, debt collectors started purchasing these old loans for pennies on the dollar. They then hired law firms and contractors known as servicers to collect not only the principal on the loans but also large amounts of back interest, blindsiding homeowners with huge bills.