'Zombie' mortgage buyers agree to $482,000 settlement with Attorney General Letitia James
Attorney General Letitia James reached a settlement with investment firms that bought New York homeowners' debt. Credit: Newsday /John Paraskevas
Investment companies that purchased New York homeowners' "zombie" mortgage debt must pay $482,000 in penalties and restitution under a settlement announced Friday by Attorney General Letitia James.
Zombie mortgages are old debts that homeowners believe were forgiven by lenders or paid off years earlier but that reemerge in lawsuits filed by debt-buying companies, according to the Consumer Financial Protection Bureau.
The attorney general's office said its investigation found companies purchased thousands of these defaulted mortgages and sued about 140 homeowners over loans taken out in the years leading up to the 2008 financial crisis. Those lawsuits include cases against Long Island homeowners, court records show.
"No New Yorker should face losing their home to a predatory company demanding mortgage payments that have long since expired," Attorney General Letitia James said in a statement.
More than a dozen limited liability companies and trusts were named in the settlement, including BCMB1 Trust; First Age, LLC; NS194, LLC; Second Start, LLC; and Southern MBA Trust.
The settlement bars the companies from seeking expired debt payments and requires them to modify lawsuits in their foreclosure cases to exclude expired debt.
Many of these loans were second mortgages created before 2008 that homeowners believed they no longer owed money on after agreeing to loan modifications with their lenders or because lenders stopped trying to collect payments, the attorney general's office said.
During that period, some mortgage lenders offered borrowers two mortgages on the same property, with the primary loan covering 80% of the price and the a secondary mortgage covering the rest, according to the Consumer Financial Protection Bureau.
Later, debt speculators purchased those secondary mortgages for pennies on the dollar.
The mortgage purchasers sued homeowners over past-due payments in violation of New York’s six-year statute of limitations on filing a debt-collection lawsuit, according to the settlement.
In some cases, homeowners stopped receiving statements or any communication from these mortgage companies for a decade or more, said Justin Pane, a Bohemia-based attorney who represents clients in foreclosure.
The issue often emerges only when a person aims to sell their house or refinance their loan, and many homeowners struggle to find the company to accept their payments, he said.
“It’s predatory,” said Pane, who supports state legislation that would protect homeowners facing lawsuits over zombie mortgages.
The settlement, he said, “is just a preliminary step on what can and should be done in this area.”
Homeowners who believe they're facing an improper foreclosure can file a complaint with the attorney general's office online or call 1-800-771-7755. Nonprofit housing counselors can also assist homeowners facing foreclosure.
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
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