US Homeowners Struggling with 'Zombie Mortgages' Face Foreclosure Risk

Loan Repayment Notices Stopped for Years
Borrower Believes Debt Was Written Off
Debt Purchase Investor Issues Home Seizure Notice

The Wall Street Journal (WSJ) reported on the 4th (local time) that some homeowners in the United States are at risk of foreclosure due to so-called "zombie" mortgages they took out over a decade ago.

According to WSJ, some U.S. homeowners are facing debt collection related to secondary mortgages they used when purchasing their homes more than ten years ago. A secondary mortgage refers to a product where a new loan is issued based on a primary mortgage, which is a mortgage loan directly borrowed from a bank. The Home Equity Line of Credit (HELOC), which provides loans based on the homeowner's pure equity after subtracting the outstanding mortgage balance from the home price, also falls under secondary mortgages.

WSJ reported that some homeowners, having not received repayment notices for years, were assumed by creditor banks to have written off their HELOCs due to repeated delinquencies. However, it was confirmed that the creditor banks did not write off the HELOCs but sold them to other investors. As these investors began notifying homeowners of possible foreclosure, homeowners who believed they had already resolved their loans found themselves in a difficult situation.

Since HELOCs are subordinate liens, foreclosure proceeds are paid to senior lienholders first, and only if there is a remaining balance will HELOC holders receive payment. Recently, with rising U.S. home prices, investors who saw an incentive to invest in HELOCs appear to have purchased large amounts of these debts.

Warren Brown, a resident of Randallstown, Maryland, told WSJ, "Last fall, I received a foreclosure notice on my home because I failed to repay the HELOC I took out in 2006," adding, "I was unaware of the existence of the secondary mortgage when I inherited the house from my brother, who owned it in 2015."

WSJ expressed concern, stating, "Banks did not demand repayment for several years, leading borrowers to believe their loans had been extinguished," and "Some borrowers, despite consistently repaying loans borrowed from banks, were unaware of additional loans they needed to repay and thus faced the risk of losing their homes."

This content was produced with the assistance of AI translation services.