Rose Prophete thought her second mortgage on her Brooklyn home was settled about 10 years ago, until she received paperwork claiming she owed more than $130,000.
“I was shocked,” said Prophete, who refinanced her two-family home in 2006 after six years from Haiti. “I don’t even know these people because they never contacted me. They never called me.”
Prophete is part of a wave of homeowners who say they were caught off guard by a foreclosure move over a second loan made more than a decade ago. The trust and mortgage servicer behind the lawsuit say the loan defaulted years ago.
Some of these homeowners said the loan system was so confusing they didn’t even know there was a second mortgage. Others believed that the second loan was either incorporated into the first mortgage payment or was forgiven. He says he hasn’t received one in years.
Now they’re told loans aren’t dead after all. Instead, they’re what critics call “zombie debt”: old loans with new collection actions.
Federal agencies don’t track the number of second mortgage foreclosure lawsuits, but lawyers who help homeowners say it’s skyrocketed in recent years. Owned by a loan buyer, it says it is now being pursued because home values have risen and it has more assets.
“They don’t get in touch with their borrowers, they put them on hold,” said Andrea Bopp Stark, an attorney at the Boston-based National Center for Consumer Law. They are coming and threatening a foreclosure because the property has value.
Lawyers for the loan owners and the companies servicing the loans argue that they are pursuing debts they legally owe, no matter what the borrower believed. And they say they are acting legitimately to claim it.
How did that happen?
Court cases can be traced back to the end of the housing boom at the beginning of the century. Some include home equity lines of credit. Others stem from “80/20” loans, where a homebuyer can take out a first loan covering about 80% of the purchase price and her second loan covering the remaining 20%. increase.
By splitting the loan, the borrower was able to avoid a large down payment. But a second loan could come with an interest rate of 9% or more and a balloon payment. Many of the loans came from discredited lenders, contained predatory terms, and were sold to people of color and low-income communities, according to consumer advocates.
The surge in people behind on mortgage payments after the Great Recession began included homeowners taking out a second loan. I was among those who took advantage, refinanced, or declared bankruptcy to keep their homes.
In some cases, the first loan was changed, but the second loan was not.
At the time, some second mortgages were “written off.” In other words, creditors were no longer demanding payment. It does not mean that the debt is forgiven. But that was the impression of many homeowners, some of whom apparently he misunderstood the 80/20 loan structure.
Other borrowers said they struggled to get answers for their second loan.
In the Miami area, Reverend Carlos Mendes and his wife Lysette Garcia signed the first mortgage amendment in 2012. After that, due to financial difficulties, payments fell behind and a bankruptcy petition was filed. The couple arrived from Cuba two years later.He bought a house in Hialeah in 2006, where he raised his two daughters.
Mendez said he did not get a response from the bank about the status of the second mortgage and was eventually told the debt was canceled or will be cancelled.
Then, in 2020, I received foreclosure papers from another creditor.
Their attorney, Ricardo M. Corona, said they owed $70,000 in overdue payments and $47,000 in principal. and the loan owners are not entitled to interest payments resulting from years in which the couple did not receive regular statements.
In Spanish, Mendez said, “Despite everything, we can fight, trust in justice, and keep our faith in God so we can solve this and protect our home.
A second loan was packaged and sold, possibly multiple times. Now the parties behind court cases initiated to recover gold are often investors buying so-called bad mortgages at steep discounts, proponents say. Many are limited liability companies that are not regulated like large banks.
The plaintiff in the Mendez and Garcia house lawsuit is listed as the Wilmington Savings Fund Association, FSB, “only as a trustee of the BCMB1 Trust, and not in its personal capacity.”
A Wilmington spokeswoman said it acts as trustee on behalf of many trusts and “has no authority over the management of properties within the portfolio.” Efforts to find someone associated with the BCMB1 Trust to answer the question were unsuccessful.
Some people facing foreclosure have filed their own lawsuits, citing periodic statements or other federal requirements related to consumer protection laws. A woman who is living in a home has claimed in federal court that she did not receive regular notices about her second mortgage or when it was transferred to a new owner, as required by federal law. She settled the matter on confidential terms in June, according to court filings.
In New York, Prophete is one of 13 plaintiffs in a federal lawsuit alleging that mortgage debts have been sought beyond New York’s six-year statute of limitations, violating federal and state law.
Rachel Geval, deputy director of Brooklyn Legal Services, which is suing the Legal Aid Society, said, “What’s so damaging is that homeowners are working so hard to pay off their loans on time. I think,” he said. “I thought they were paying off their debts.”
According to the complaint, the defendants in the lawsuit were loan servicer SN Servicing and law firm Richland and Falkowski, representing the mortgage trusts involved in the lawsuit, including the BCMB1 trust. In court filings, defendants challenge plaintiffs’ interpretation of the statute of limitations, say they acted properly, and seek dismissal of the action.
In a letter to the judge, attorney Daniel Richland wrote that “the allegations in the various foreclosure cases are true and neither misleading nor deceptive.” is implausible and therefore justifies its dismissal.”
Associated Press writer Claudia Torrens and New York researcher Jennifer Farrar contributed to this report.