As if paying for a mortgage today weren’t hard enough, some homeowners are getting collection notices for loans taken out over two decades ago.

Major gains in home values have led to an unintended consequence: debt collectors coming after old, unpaid home loans, appropriately called “zombie mortgages.” The issue has become widespread enough that the Consumer Financial Protection Bureau issued an advisory opinion last April warning debt collectors that threatening to sue over expired debts like zombie mortgages was illegal. At that time, CFPB Director Rohit Chopra publicly expressed concern about the increasing number of complaints the agency had received over these belated collection efforts.

In his comments and the opinion, Chopra clarified that third-party debt collectors covered by the Fair Debt Collection Practices Act can’t start foreclosure proceedings on time-barred debts or those where a state’s statute of limitations has passed. (Most zombie mortgages fall into these categories.)

However, the problem has proven to be more persistent than the CFPB would like.

A recent investigation by NPR found foreclosure activity had begun on 10,000 old second mortgages over the past two years in New York state alone. And judging by a recent spike in Google searches for the term, some homeowners are still getting collection letters and nasty phone calls.

What is a zombie mortgage?

The term refers primarily to piggyback loans taken out during the years leading up to the 2008 financial crisis, but it could also refer to any old mortgage that wasn’t paid off during the loan’s term and has been dormant for several years with no communication from the lender.

A piggyback mortgage, also called an 80/20 loan, is basically two loans in one. The first and primary lien covers 80% of a home’s purchase price, while the second loan covers the remaining 20%. The product was designed to allow a buyer to finance 100% of a home purchase. If the mortgage holder falls behind on the second mortgage, the lender can start foreclosure proceedings even if the first mortgage is current.

When the Great Recession hit, home values tanked, and many homeowners were unable to pay their loans. Some lenders wrote off some of these second mortgages as bad debt or sold them to debt collectors at a reduced price. In some cases, lenders just stopped contacting the borrower about the loan and never sent collection notices.

As a result, some homeowners assumed the loans were modified, discharged or written off and basically forgot about them. The mortgages were, for all intents and purposes, dead.

Fast-forward to the pandemic, which saw record-low mortgage rates and a homebuying rush that sent home values through the roof in many cities. Now, some lenders and debt collectors are reviving these loans and sending notices to homeowners.

“These companies demand the outstanding balance on second mortgages, often inflated with interest and fees, and may threaten foreclosures on families that do not and cannot pay,” a CFPB spokesperson tells Money.

The spokesperson went on to point out that the tactics used by zombie mortgage debt collectors are often illegal, and the agency works with state enforcement officials to track these offenders down.

How to handle a zombie mortgage

If you receive a collection notice on a loan you believe was forgiven or satisfied (i.e. paid in full), don’t panic — and don’t automatically take the debt collector’s word. Though it’s possible you’re on the hook for the mortgage, you should do some homework first.

Your first step is to get more information. Ask the creditor for details of the debt, including the amount and who you owe. They are required by law to provide this in writing, as well as a description of your rights under the Fair Debt Collection Practices Act. (Among those rights: The collector must provide all relevant details of the debt, including the amount owed and who you owe; you cannot be harassed, abused or threatened with legal action; and you have the right to sue the collector if they use illegal tactics.)

If you know you’ve paid the mortgage off and have proof, get copies of all the relevant documents, such as the deed of reconveyance, which shows you satisfied the debt. Send the copies to the lender or collection agency. If you haven’t kept records that go back that far, you may be able to find copies at your county’s records office.

You may also want to consult with an attorney to find out how state laws treat these cases. Even if you didn’t pay off the loan, you still may not be responsible for the debt today.

According to the CFPB, some states remove the old debt altogether or have a time limit on collecting unpaid mortgages, while others may allow the collection to go forward but eliminate the risk of foreclosure. A lawyer familiar with local laws can help you determine any financial responsibility you may have. You may even be able to sue the debt collector.

“Debt collectors do not get to claim ignorance of the law or ignorance of the debt’s age,” said Chopra back in 2023. “If the statute of limitations has expired, taking legal action, threatening suit or foreclosure, may be illegal.”

If you believe you are being unfairly targeted about an old debt, whether it’s a mortgage or some other loan, you can file a complaint with the CFPB.

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According to a recent report from Money.com, homeowners are facing a new challenge in the form of “zombie mortgages.” These are old home loans, primarily piggyback mortgages taken out before the 2008 financial crisis, that have been dormant for years with no communication from the lender. However, with the recent surge in home values, some lenders and debt collectors are reviving these loans and sending collection notices to homeowners.

The issue has become widespread enough that the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion last April, warning debt collectors that threatening to sue over expired debts like zombie mortgages is illegal. CFPB Director Rohit Chopra publicly expressed concern about the increasing number of complaints the agency has received over these belated collection efforts.

Chopra clarified that under the Fair Debt Collection Practices Act, third-party debt collectors cannot start foreclosure proceedings on time-barred debts or those where a state’s statute of limitations has passed. However, a recent investigation by NPR found that foreclosure activity has begun on 10,000 old second mortgages in New York state alone over the past two years. And according to a recent spike in Google searches for the term, it seems that some homeowners are still receiving collection letters and phone calls.

So, what exactly is a zombie mortgage? The term primarily refers to piggyback loans, also known as 80/20 loans, which were popular before the 2008 financial crisis. These loans allowed buyers to finance 100% of a home purchase by taking out two loans – one covering 80% of the purchase price and the other covering the remaining 20%. However, if the borrower falls behind on the second mortgage, the lender can start foreclosure proceedings, even if the first mortgage is current.

During the Great Recession, many homeowners were unable to pay their loans, and some lenders wrote off these second mortgages as bad debt or sold them to debt collectors at a reduced price. In other cases, lenders simply stopped contacting the borrower about the loan and never sent collection notices. As a result, some homeowners assumed the loans were modified, discharged, or written off and essentially forgot about them. These mortgages were essentially “dead.”

However, with the pandemic causing record-low mortgage rates and a homebuying frenzy, home values have skyrocketed in many cities. This has led some lenders and debt collectors to revive these old loans and send collection notices to homeowners. These notices often demand the outstanding balance on the second mortgage, which may be inflated with interest and fees, and may even threaten foreclosure on families who thought their mortgage was long gone. 

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