Dawn of the Dead (Mortgage)
A sudden rise in second priority mortgage foreclosures is catching homeowners off guard causing them to scramble to work out a solution with their lender to avert an impending foreclosure sale. These second priority “zombie” mortgages seemingly rise from the dead long after borrowers have forgotten about them.
Popular among first time home buyers, these second priority “zombie” mortgages are often part of what is commonly referred to as an 80/20 loan package. The first mortgage covers 80% of the home purchase price. The second mortgage is either a home equity loan or a home equity line of credit that covers the remaining 20% of the purchase price. A typical scenario occurs when a borrower experiences some financial difficulty, can maintain payments on the first mortgage, but is unable to make payments on the second mortgage causing it to go into default.
For many years pre-pandemic, there was no financial benefit for a lender to foreclose on a second mortgage because property values were low. Potential foreclosure sale purchasers typically will not bid on a property that has little equity or a low value because the first priority lienholder has to be paid off before the purchaser can then turn around and sell the property. When home values are low, a foreclosure sale purchaser is unable to realize a profit if they payoff the first mortgage after purchasing the property at a foreclosure sale and then try to sell it. Under these conditions, both lender and borrower seemingly “forget” about the zombie mortgage. The lender forgoes sending default notices or monthly statements to the borrower, sometimes for years, and the borrower wrongfully assumes the second mortgage lender has forgotten about the loan or charged it off. After years of silence and inactivity, it is understandable why they may think that.
With post pandemic home values sky rocketing, there is suddenly an incentive to revive these zombie mortgages and send out foreclosure notices to the borrowers seemingly out of the blue. In a state like Georgia where the time between the default notice and foreclosure sale is less than two months, it may be difficult to quickly come up with the necessary funds to reinstate a loan that has incurred many years’ worth of late fees and accumulating interest. If disaster strikes and a zombie mortgage rises from the dead, Weber Pierce, LLC can assist with navigating potential loss mitigation alternatives and negotiations with a lender to prevent the loss of your home to foreclosure.
*This post is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide legal advice. By using this blog, you understand that there is no attorney-client relationship between you and Weber Pierce, LLC.