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postage, and a digital scale. This

0:51

is Planet Money from NPR. One

0:56

spring morning, a couple of years ago, Karen McDonough

0:59

was having her tea at her dining room table. She

1:02

lives in a cute little two bedroom place

1:04

in Quincy, Massachusetts. She looks at

1:06

her window to the neighborhood beyond, and

1:08

she sees something unusual. There

1:10

were like 20 cars and they all came at

1:12

the same time, and they parked like in front

1:14

of my house, across the street, up the street,

1:17

and down the street. I just had this

1:19

feeling like something really bad had happened. She

1:22

was right. Something bad was definitely

1:24

happening to her. And then

1:27

I saw people get out, and

1:29

then they were like coming to my lawn, and

1:31

I'm like, why is everybody at my house? Karen

1:34

puts on her shoes, goes out to the driveway. At

1:37

this point, a group of men are milling around

1:39

the lawn, casually dressed, except for one

1:41

guy who seems to be in charge. There

1:44

was somebody, I think he might have had a uniform

1:46

on or something, and he had a piece of paper,

1:48

and I said, what's happening? And

1:50

he goes, we're selling

1:53

your house. And I'm

1:55

like, what are you talking about? He goes, don't

1:57

pretend that you don't know what I'm talking about.

2:00

And I go, I actually don't know what you're

2:02

talking about. And he's like, well, we

2:04

sent you information. And it

2:07

was like a foreclosure sale on my home. This

2:10

made no sense. Karen had been in

2:12

the house for 17 years. She's

2:14

a registered nurse, makes a good living, raised two

2:16

kids here. And she was current on

2:18

her mortgage. Sure, there were a

2:20

few bumps along the way. A long time

2:22

ago, during the great financial crisis, she had

2:25

asked for a modification of her mortgage. That

2:27

was perfectly normal back then, lower to payments.

2:29

But now these men on the lawn were

2:31

telling her, this is a foreclosure. You are

2:34

going to lose this house. Karen

2:36

is thinking, this has to be some kind of

2:38

scam, right? I mean, maybe they're trying to rattle

2:40

me. She doesn't know what to do. So

2:43

she gets in her car. I almost didn't feel safe.

2:45

Like, I didn't know what they were doing. And

2:47

I said to the people, I said, I'm backing up. I said,

2:49

get out of my way. And I just left. For

2:52

months, Karen had been getting mysterious phone

2:54

calls from strangers demanding money. Men insisting

2:56

that they had dug up some long

2:58

lost debt she owed. It seemed

3:01

so sketchy, like some sort of con game. But

3:03

the men on her lawn seemed pretty real.

3:06

She eventually finds herself at a beach outside

3:08

Boston. And was it just like you drove to

3:10

the beach and like look out at the water and you're like, what

3:12

the hell is going on? Yeah, I was like shaken. Just

3:18

like really overwhelmed. I

3:20

was crying. It just didn't make any

3:23

sense. I'm a mother and I'm a

3:26

nurse and I'm being evicted from my house that

3:28

I've been making monthly payments on. And

3:31

then I'm current with. By the time she made

3:33

it back to her house, it was all over. The

3:36

strangers on her lawn had sold the

3:38

house out from under her. Hello

3:43

and welcome to Planet Money. I'm Robert Smith. And

3:45

I'm Chris Arnold. We've been looking at a Karen's

3:47

case for months now. And what

3:49

we found was much scarier than some

3:51

scam. Karen was right.

3:53

She'd been paying her mortgage every month for years.

3:56

This whole drama was about old

3:58

debt. been heard

4:00

from in more than a decade. Debt

4:02

that everyone had told her was gone

4:05

and forgotten. Our investigation revealed that thousands

4:07

of other people are getting the same

4:09

calls and facing the exact same sort

4:11

of nightmare as Karen. People who took

4:13

out loans about 20 years ago, many

4:15

say they were told the loans had

4:18

been forgiven, but now the debt collectors

4:20

come calling anyway. They are known as

4:22

zombie mortgages. Zombies, because they can stay

4:24

buried for years and then reach out

4:26

and grab you. And take everything. Today

4:28

on the show, why are all of

4:31

these old debts coming back to life right

4:33

now? Is it legal? And is

4:35

there any way to stop the zombies? This.

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That's why it's got to be

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a CFP. Find your CFP professional

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at Let'sMakeaPlan.org. Karen

5:35

remembers the first time she saw

5:37

her future home, the little yellow

5:39

cottagey house in Quincy, Massachusetts. It

5:41

was 2005. She'd just gotten

5:43

divorced and was living in a small apartment

5:45

nearby with her two sons. I

5:47

saw this house. I really liked it. I thought

5:50

the size was kind of charming. You

5:52

know, it had little yards. I thought it would

5:55

be perfect because it was just the three of us. Back

5:57

Then, a lot of people wanted to buy houses.

6:00

Housing bubble was filling with steam.

6:02

I had a friend in she was

6:04

a real it or and at the

6:06

time see was told may that you

6:08

could buy a home. Ah, I'm right

6:10

now that they thought it was a good time to

6:12

buy a home. And here's how most

6:14

people do it: to purchase a house you

6:16

put down ten percent sometimes is twenty percent

6:18

in cash as a down payments, and then

6:21

you borrow the rest of the money as

6:23

amorphous. Karen had a well paying

6:25

job as a nurse at Massachusetts General Hospital.

6:27

Modest savings but the house with three hundred

6:29

and sixty five thousand dollars and she didn't

6:31

have tens of thousands of dollars for a

6:33

down payment. But. During the housing bubble,

6:36

Wall Street and banks wanted more people to

6:38

buy houses so the team up with all

6:40

kinds of ways to do that and one

6:42

was a system to get rid of the

6:45

down payment instead of to be just one

6:47

mortgage. They. Would give you two

6:49

mortgages to loans and that second

6:51

mortgage would basically cover the down

6:53

payment. The used to say no

6:55

down payment, no problems. Just. Take

6:57

a second mortgage. And. It was called

6:59

the second because if something happened to the homeowner

7:02

and they had to foreclose on the house is

7:04

a big mortgage. The first mortgage would be first

7:06

in line to get their money back. The second

7:08

mortgage would be second and lot. It. Takes

7:10

longer to explain all this that it took for turned

7:13

with Donna to actually get one. Or. A

7:15

was the easiest thing I've ever apply for.

7:17

I just sold out paperwork and submitted it

7:19

and as if is approved. It. Was

7:21

two hundred ninety two thousand dollars for the

7:23

first mortgage and seventy three thousand for the

7:26

second. The. Two bedroom cottage is

7:28

hers and she makes one of

7:30

the great parental sacrifices for her

7:32

son's. I. Gave them the master on

7:34

my room I gave them because they

7:36

see that rome and then I took

7:38

the smile around but it was good

7:40

assaulted. And then as turn

7:43

sleeps in her tiny bedrooms, the

7:45

world just goes crazy. The

7:47

housing bubble collapses and the

7:50

great financial crisis. Begins.

7:52

We. Were both reporters then Chris? yeah, we

7:55

cover this together. Such as Ramadan at it

7:57

was pretty intense, right? I'm in two thousand

7:59

and eight. Lehman Brothers collapse. it

8:01

said banks were going under the leaders

8:03

of countries were scared was on the

8:05

news every night and while that was

8:07

going on a a lot of people

8:10

were losing their homes and as we

8:12

all looked into it we discovered it

8:14

was those easy mortgages they had this

8:16

time bomb. In the time bomb was

8:18

at the interest rates were adjustable. I

8:21

saw this destroy people. but honestly like suck

8:23

my faith in the banking system that anybody

8:25

would make these loans in the first place

8:27

like people would be chugging along paying your

8:30

mortgage that they could afford. But after just

8:32

a couple years the loans were set to

8:34

adjust way up. Yeah. When you

8:36

say way up we mean like seven hundred

8:38

dollars more a month or thousand dollars more

8:41

a month mean millions of people could not

8:43

pay their mortgages, They were foreclosed upon and

8:45

eventually other houses taken away from. the I

8:47

was so many people that the government had

8:50

to get involved. President Obama at the time

8:52

in his name was on the program. I

8:54

just because that many people needed help or

8:56

to be this national intervention. Yeah, they're called

8:59

Obama Loan Modifications and they sort of pushed

9:01

down the interest rates, essentially allowing people to

9:03

stay in the place they were living. Yeah

9:06

and are I talk to people who who

9:08

would say like President Obama fixed my

9:10

mortgage and I didn't really have the hard

9:12

to tell him like why it probably wasn't

9:15

the president was self with like the

9:17

on moving papers around and and fixing your

9:19

murders so soon eventually.one of these loan

9:21

modifications for her big mortgage her first mortgage

9:23

which is just a huge relief for

9:25

her but maybe seeking what about the second

9:27

mortgage the once had taken out for the

9:30

down. This. Is the

9:32

crucial question that will eventually lead

9:34

to those men standing on her

9:36

front lawn as Cared remembers it.

9:38

Her mortgage company told her that

9:40

that second mortgage was forgiven. I.

9:43

Was actually in my kitchen. I was cooking

9:45

dinner and I was hooked into a representative

9:47

and he told me I would never have

9:49

to make of him and again on the

9:51

second mortgage and I I I just in

9:53

question any of exercise a. As

9:55

is so Grateful Dead. The.

9:57

law was modified and to be clear there

9:59

wasn't any reason to question it. The

10:01

same company had given her both mortgages,

10:04

and now a representative for that company

10:06

handling both mortgages was saying, hey, don't

10:08

worry about the second. And

10:10

sure enough, she used to get two bills in

10:12

the mail for the two mortgages. And

10:14

after a while, she just got one bill in

10:17

the mail for her first mortgage. That seemed to

10:19

settle it, right? I mean, this thing must be

10:21

dead. Years go by. A decade.

10:24

Karen keeps going to work at Massachusetts General.

10:27

She keeps paying her first mortgage. Her sons

10:29

grow up. You can still see the pencil

10:31

marks on the kitchen wall. If you look at this, you can

10:33

see like this is them growing up in

10:35

like their height. They got all of that. They're

10:37

both child. In

10:41

2020, though, she gets a letter.

10:44

It's from a company she's never heard of,

10:46

First American National. It

10:49

sounds like a bank, but it sure

10:51

isn't her bank or even one that

10:53

she's ever heard of. And the letter

10:55

says you owe us money. It

10:57

had an amount and they wanted like a payment.

10:59

And I think the amount

11:03

was like $77,000. So I was kind of

11:05

like shocked. I was kind of in disbelief.

11:09

She thinks it can't be about her

11:11

mortgage. She's been paying that every month

11:14

to another company. So she

11:16

calls the phone number on the letter. I'm like,

11:18

are you the lawyer that's sending this

11:20

information to me? And he was like, yeah. And

11:22

then I was like, well, I'm

11:25

like, why are you doing this? And he goes, well,

11:27

why do you think I'm doing this? So

11:29

he never answered me the

11:31

way that I thought a professional lawyer would.

11:34

So I just thought right away was fraud. She

11:36

decides to ignore it. But soon

11:39

it becomes impossible to ignore. There are

11:41

more phone calls demanding different amounts of

11:43

money threatening to foreclose on her house

11:45

if she doesn't pay up. Karen

11:47

starts to piece together that these calls

11:49

are about that second mortgage that she

11:51

had so long ago, the one that

11:53

she'd been told was forgiven. So

11:55

she calls up her first mortgage company. I

11:57

was crying on the phone with them. Like

12:00

having a nervous breakdown. And she says

12:02

they told her you know what This

12:04

is probably fraud and. They kept saying

12:07

like we're gonna help you You

12:09

can't lose your home. So this. You

12:11

can't lose your home through this. That

12:14

seems logical. If someone official says

12:16

that alone is forgiven, then it

12:18

must be forgiven, right? If.

12:20

No one since You a statement for a decade.

12:22

The kids just call you up out of the

12:24

blue and demand money. Can they? We

12:27

called lawyers and advocates all over the

12:29

country government officials. They'd heard of stories

12:31

like Karen's anecdotal stories about people losing

12:33

their homes are being forced to sell

12:35

them to pay the debt collectors, but

12:37

nobody seemed to know the scale of

12:39

the problem. In. Fact: One top federal

12:41

official told us. If. You find

12:44

out, Let us know. Yes! So

12:46

we kept digging, filed freedom of

12:48

Information requests in just one state

12:50

state of Maryland we at least

12:52

five hundred people facing foreclosure from

12:54

would appear to be long dormant.

12:56

Zombie Second Mortgage is just like

12:58

Carrots. And. When we looked across

13:01

several states, we found at least ten

13:03

thousand people who have old. Second mortgage

13:05

is on the housing bubble when our

13:07

company is taking the very first step

13:09

toward foreclosure. Our. Investigation also uncovered

13:11

databases with the names of the

13:13

companies that own these mortgages and

13:15

that are trying to foreclose on

13:17

people. There was First American National

13:19

the people who care and had

13:21

said we're calling her and answering

13:23

her questions with more questions and

13:25

companies with more quipped at names

13:27

like B C M B One

13:29

Trust, First T L C and

13:31

A R C Private Equity. We.

13:34

Tried to reach out to these companies

13:36

but a lot of them are Llc

13:38

registered in Delaware, which makes it extremely

13:40

difficult to figure out who exactly owns

13:42

them by a R C Private Equity

13:44

popped up on Linked. Then the cofounder,

13:46

a guy named David Gordon was wishing

13:48

everybody a happy New year and asking

13:50

if they happen have any old mortgages

13:52

that they wanted to sell which is

13:54

everyone knows is the traditional Wall Street

13:57

way to celebrate the New Year. So

13:59

we called David up the hadn't explain.

14:01

Why? Is this happening now? Why

14:03

is all this old zombie debt

14:05

coming back to life? He.

14:07

Was happy to talk to us. Hey. I've got

14:09

good. How are you Chris? I'm Robert

14:12

Axle. Which ones? Which ones? Which. We.

14:15

Do get Salmonella! David is part

14:17

of a whole ecosystem of people

14:19

that buy and sell mortgages and

14:21

generally speaking, having a lot of

14:23

investors pouring money into home loans

14:25

makes them cheaper and easier to

14:27

get. David occupies a particular niche

14:29

and all that if he's buying

14:31

up bad debt. Now David doesn't

14:33

own Terence Old Market. But. He's

14:35

been a lot of old mortgages just

14:37

like are sent letters asking for money

14:39

and sometimes threatened foreclosure. Know him

14:41

personally, of course, he uses a debt collection

14:44

from I'm not looking to take anybody's home,

14:46

I want to make that clear. He.

14:48

Only investor deserves to make their money

14:50

back. You. Know and and there is

14:52

real money at stake. The zombie mortgage problem

14:54

was created during the run up to the

14:56

financial crisis of Two Thousand and Eight. David.

14:59

Was their watches it first hand. He

15:01

was at Morgan Stanley buying and selling

15:04

mortgages like terrorists, putting them into bundles

15:06

and selling them off as mortgage bonds.

15:09

And then people started to default on

15:11

their mortgages and Morgan Stanley was on

15:13

the brink of going under the expected

15:15

to be laid off any day. And

15:17

we were playing literally putt putt golf on a trading

15:19

desk for about six weeks. We only was going to

15:21

happen was a matter of when. The. Mortgage

15:24

industry was wrecked. many of the loans

15:26

they made close to worthless. We went

15:28

from being rock stars to office on

15:30

being frozen on the desk. He know

15:32

wall loves you, want a hate the

15:35

next day and fires you the day

15:37

after That. David. Was suddenly unemployed

15:39

but he noticed something. All. Those

15:41

mortgages he had helped packets up and

15:44

securities and sell for Morgan Stanley. They.

15:46

Were on fire sale. The. bank was

15:49

a sinking ship and they were throwing

15:51

bundles of dodgy mortgages overboard mortgage bonds

15:53

good ones in with the bad you

15:55

know i'm looking at some of these

15:57

bonds that were treated that we helped

15:59

create And that's when

16:01

I had the aha moment. There's

16:03

a great opportunity to have a

16:06

good business. The business is to

16:08

buy these bundles of mortgages for

16:10

sometimes pennies on the dollar. Sure,

16:13

some of them were worthless. The people who borrowed

16:15

the money would never pay it back. But

16:17

other mortgages might be worth something,

16:20

if you're willing to wait. And wait,

16:22

they did. David and others like him

16:24

bought up thousands of these mortgages. We

16:27

asked him about Karen, though. She had

16:29

modified her first mortgage, and

16:31

she says she'd been told explicitly that she

16:33

didn't need to worry about that second mortgage.

16:35

David says he hears this all the time.

16:38

People think they had their loans canceled. Maybe

16:40

sometimes they were even told their loans were

16:42

gone. But in many cases, he

16:44

says, they still exist. It's not

16:47

like they went away. And

16:49

I think people were waiting on the sidelines to collect

16:51

on those at some point. And

16:53

that's why so many zombie mortgages are all

16:56

coming back to life right now. Everything

16:58

big has changed in the real estate

17:00

market that is causing debt collectors to

17:02

come off the sidelines. And

17:04

that is home prices. This is

17:07

the fascinating thing about first and second

17:09

mortgages. As we mentioned before, it's

17:11

like the two mortgages are waiting in line

17:13

to get paid back, right? If a house

17:15

is sold or foreclosed upon, the first mortgage

17:17

takes all the money, and anything left over

17:20

goes to the second. So when

17:22

home prices tagged and the housing market crashed

17:24

back in 2008, the second mortgages seemed

17:27

worthless. If you foreclosed and sold the

17:29

house, you wouldn't even get enough money

17:31

to cover mortgage number one. So there's

17:34

nothing left for mortgage number two. But

17:37

if you bought second mortgages and waited

17:39

on the sidelines for housing prices to

17:41

go up, all of a sudden

17:43

the sad old second mortgage might

17:45

be worth something. The house would be

17:47

worth enough money that people like David could show up

17:50

and say, time to

17:52

pay back that long forgotten debt. This

17:55

is what was happening to Karen. The house she'd bought

17:57

for $365,000 in two. 2005

18:01

is now worth more than six hundred

18:03

thousand dollars. And home prices have risen

18:05

massively all over the country. And as

18:07

that's happened, more people like David have

18:09

been buying up the old second mortgages

18:11

and sending those letters. These

18:13

zombie mortgages have been opening their cold dead

18:15

eyes and finally coming to life. Now

18:18

David tells us he's reasonable. He

18:20

follows the rules. He'll negotiate with

18:23

the homeowners, even lower the

18:25

amount that he says they owe just a

18:27

bit sometimes. We're trying to work

18:29

with our borrowers, nine times out of ten we're working with

18:31

our borrowers and most of those

18:33

borrowers have been open to that. But he

18:35

says look, if you borrow money, you have

18:37

to pay it back. You are sitting on

18:40

a very expensive home and this debt helped

18:42

pay for that, helped you buy that home.

18:44

And if somebody doesn't pay or doesn't respond,

18:46

he does foreclose on houses. Nothing

18:48

is free in this world. And

18:51

if you signed up for a loan, you know what you signed up for. It

18:53

blows my, it just, you

18:56

know, it is what it is. You

18:59

know what you signed up for. Sure. But

19:02

in Karen's case, she believed that what she

19:05

had signed up for had changed, that

19:07

the second mortgage was

19:09

forgiven. When we last left

19:11

Karen's story back in Quincy, Massachusetts, she was just

19:13

starting to get those phone calls that felt like

19:15

a scam. And

19:18

these debt collector guys, they weren't just asking for

19:20

the original $73,000 she borrowed. The

19:22

numbers kept changing with different calls and

19:25

different letters. Like all of

19:27

a sudden here is a $73,000, no, it is $77,000, no, oh, actually it is $112,000. One

19:33

document says they were trying to collect two and

19:35

a half times what she had originally borrowed, $184,000.

19:40

She calls her first mortgage company again. It

19:42

is called PHH. These are

19:44

the people she pays every month. The ones

19:47

she says told her it was probably a

19:49

scam to ignore the letters. They told

19:51

me not to talk to them. PHH

19:54

told me not to talk to them anymore.

19:56

Don't give them any information. Hang

19:58

up on them. Don't talk to them. Then I start

20:00

talking to them. This would turn out

20:02

to be exactly the wrong thing to do.

20:05

We reached out to Phh and they said

20:07

they have not been able to find any

20:09

record of giving carrying this advice or even

20:11

that they told care and that alone with

20:14

forgiven in the first place. In.

20:16

Twenty Twenty One. That mysterious company, First

20:18

American National, started foreclosure action on Turns

20:20

Home. They did the usual legal things

20:22

they center letters to, got ads and

20:24

a local newspaper. The eventually sent that

20:26

guy in the uniform to stand on

20:28

a front lawn that spring day. While.

20:31

Carrying was sitting at the beach wondering

20:33

what was happening. They auctioned off her

20:36

home and the winning bidder ended up

20:38

being that same company First American National.

20:41

Her. House is now worth more than six

20:43

hundred thousand dollars. They bought it for

20:45

a hundred and eighty thousand. A

20:47

few weeks later turned got an orange eviction

20:49

notice posted on her front door. And

20:51

I saw the are saying and then

20:53

it said like. You.

20:57

Have like seventy two hours to get out.

20:59

This is July First it was the Friday

21:01

they. Did it on a Friday so

21:03

the seventy two hours to money was

21:05

the holiday and like. I s is

21:07

the Fourth of July fourth of July

21:10

weekend second getting legal help even though

21:12

as China. So for those three

21:14

days seventy two hours I didn't sleep in, I decide

21:16

park in every. You actually started

21:18

to panic. Yeah, his clients. Saturday.

21:20

Stay as tat. And.

21:23

You're pulling lawyers is. Most.

21:26

Of the lawyers say look it's true late

21:28

I mean lady at your houses sold is

21:31

nothing we can do but she does find

21:33

one group of legal aid lawyers, a team

21:35

that agrees to take a look at her

21:37

case. The teller, look, whatever you do don't

21:39

we that how start packing, don't move out.

21:41

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23:20

seen a lot of zombie movies. I'm

23:22

kind of an expert and the whole

23:25

thing about zombies is it. Once they

23:27

come back to life, they are relentless.

23:29

You can tower in your home, but

23:32

they just keep comments and are thousands

23:34

of them. And. That's pretty much

23:36

what's been happening with zombie mortgages. It's

23:38

not just Karen it. There are thousands

23:40

of people waking up and finding that

23:42

their whole life is trends and just

23:45

liquid zombies hiding in your house and

23:47

hoping will be okay. It's does Not

23:49

work. You. Have to fight back. There

23:51

are layers and there are people

23:53

out there who are willing to

23:55

help you because. It is

23:58

not right. and you should know these your

24:00

home. Kristy Kelly has a consumer

24:02

law firm in Fairfax, Virginia. She's not

24:04

Karen's lawyer, but she's represented a lot

24:06

of people who are in basically the

24:08

same situation. Kristy started out doing

24:10

legal aid work during the housing crash 15

24:12

years ago. And like most of

24:15

us, she thought this whole housing bubble

24:17

debacle was over and done with. Ancient

24:19

history until a few

24:21

years ago. She began to get calls

24:23

from people who were getting these threatening

24:25

letters about old second mortgages. You

24:27

know, you see like a lot of scams

24:29

as a consumer lawyer. And I

24:32

thought this can't be right. There must be

24:34

something going on. And then

24:36

I realized that this

24:39

is not an error. It's a new trend.

24:42

Kristy calls the debt collectors and asks for the

24:44

records on the loans. And what

24:46

she sees is actually really ugly. Some

24:48

of the loans have no documentation, no

24:50

payment history. The record keeping was terrible.

24:52

And Kristy was especially shocked by how

24:54

cheap these mortgages are bought and sold

24:57

for. Remember, these companies are calling up

24:59

homeowners and demanding tens of thousands of

25:01

dollars. But sometimes these debt

25:03

collectors have purchased that debt for almost

25:05

nothing. We have a case where a

25:08

portfolio of approximately 9,000 loans was sold for

25:10

$6,000. And so each loan

25:16

was sold for less than a dollar. Sometimes

25:19

the loan sale for more could be $10,000 or $20,000 even for a loan. But in

25:23

this case, it's conceivable that a company

25:25

could purchase a loan for pennies. And

25:28

even though it's called a second

25:30

mortgage, they can and do push

25:32

ahead and take your home and

25:34

get say $100,000 or more without

25:37

the first mortgage even knowing about

25:39

it. People don't understand,

25:41

even very sophisticated people,

25:44

do not understand that a

25:46

second mortgage company can foreclose

25:48

if you do not do something to stop

25:50

it. And they can

25:52

take everything from you. And

25:54

it is just so wrong that this is

25:57

happening. It may be wrong, but

25:59

is it illegal? Christie starts looking

26:01

for things she can present to a judge

26:03

and get these foreclosures stopped. She

26:05

pours through federal and state laws,

26:07

previous court cases. There's lots of

26:10

precedent about first mortgages and foreclosures.

26:12

But this whole situation with second mortgages people

26:15

thought were long dead, that's

26:17

new. You know, that was like another

26:19

panic. Like, there's no protections. You

26:21

know, my client thought their loan had been canceled

26:24

or forgiven. But there's no database

26:26

of like all the loans that are canceled

26:28

or forgiven. So you can go and verify

26:30

it. So it's hard to prove that

26:32

the loan was canceled. But Christie

26:34

notices something that the debt collectors might

26:36

have overlooked. A huge thing, actually, that

26:38

they had either missed or ignored in

26:41

the regulations. Something that she thinks

26:43

she might be able to fight them on. We

26:45

told you about how the debt collectors have added

26:47

years and years worth of interest and late fees

26:50

to the debt, sometimes doubling the size of the

26:52

loan. Federal regulations say you

26:54

can do that. But here's the catch.

26:56

You have to send monthly statements like

26:58

the ones you get for credit

27:01

cards and student debt. Regulation

27:03

Z, which is part of

27:05

the Truth in Lending Act, it requires monthly

27:07

statements be signed if

27:09

there is interest assessed

27:12

on a mortgage. Did you say

27:14

Regulation Z? Yeah. Z like zombie?

27:17

Yes. Exactly

27:20

like zombie. I love it.

27:22

Fighting zombies with zombies. Regulation

27:24

Z. Christie now had her

27:26

legal crossbow to take on the zombie

27:29

mortgages. In court, she can now

27:31

ask these debt collectors, oh,

27:34

one more thing. Before you foreclose on this home and

27:36

take away everything from this person, show

27:38

me the 10 years worth of statements,

27:40

please. I want to see every month,

27:42

every statement with every mispayment, every dime

27:45

of interest. But she says

27:47

a lot of the time that just

27:49

never happened. The homeowners hadn't been getting

27:51

any statements for years. And

27:54

then the companies would pile on a

27:56

massive amount of interest in late fees

27:58

retroactively. the

28:01

greed of the second mortgage

28:03

holders has given people leverage

28:06

in their cases. Because

28:08

it's just not good enough to collect

28:10

the value of the note and

28:12

they want to go and get

28:15

every last dollar and take every

28:17

dime of equity, they then open

28:19

themselves up to serious

28:21

legal consequences and

28:23

provide consumers the leverage they need to stay in

28:25

their home. As a

28:27

lawyer, Kristie can say, gotcha,

28:29

you violated Regulation Z on

28:31

sending statements, so your claim

28:33

against my client is completely

28:36

bogus. This is just one

28:38

strategy, but Kristie has used it to

28:40

help homeowners in dozens of cases. She

28:43

just resolved a class action case where she was able to get

28:45

the names of nearly 300 homeowners

28:47

from one company and help them all.

28:49

Still, she's just one lawyer basically in

28:51

a lifeboat trying to pull in all

28:53

the people she can to rescue them,

28:55

but knowing that there must be thousands more

28:58

out there who need help. Among

29:00

them, Karen McDonough, back

29:02

in Quincy, Massachusetts. Hey, Karen.

29:04

Oh, yeah. Good to see you guys. You

29:06

too. Despite everything that has

29:08

happened, Karen is still in her little yellow

29:11

house. We sat down with her in

29:13

her living room and she explained what had happened over

29:15

the last few years. She got a

29:17

team of lawyers, she stopped packing her boxes

29:19

and did not move out. The eviction proceedings

29:21

are on hold while they argue the case

29:23

in court. First American National

29:26

legally owns the place, but Karen's

29:28

still paying her mortgage every month,

29:31

so she's living in this kind of limbo.

29:33

I feel like what happened was a terrible thing,

29:39

but I'm still really hopeful that I'm going to stay in my

29:41

home. I'm really hopeful I'm going to

29:44

win this case. We'll

29:46

have to wait and see. At one point,

29:48

these zombie seconds were real loans. In

29:51

some cases, the debt collectors have a legitimate

29:53

claim to collect or foreclose on people's homes.

29:56

In other cases, they don't. They haven't followed a bunch

29:58

of rules. Karen's

30:00

case is still playing out. Karen's lawyers

30:02

have now been piecing together what happened

30:04

to that second mortgage over the past

30:06

12 years. And it's

30:08

kind of amazing, really. She spent 10 minutes signing a

30:10

mortgage, and then it took on a life of its

30:13

own that she never knew about. Karen has

30:15

filed a lawsuit that lays out the story we

30:17

just heard, that she was allegedly told the second

30:19

mortgage was forgiven, that she didn't get statements, and

30:21

that she was told the debt collection was probably

30:23

fraud. Her lawyers are arguing that

30:26

the mortgage should have been resolved a decade ago.

30:28

Instead, when her lawyers tracked her second mortgage,

30:30

they found that it got passed from company

30:33

to company, and it eventually was sold in

30:35

a huge batch of about 600 other mortgages

30:39

in 2020 to an LLC

30:41

apparently connected to First American

30:43

National, which her lawsuit alleges

30:46

used unfair and deceptive practices to foreclose

30:48

on her house. And who

30:50

exactly is this First American National? Despite

30:52

a name that sounds like a bank,

30:54

it is no bank. Far

30:57

from it. There appears to be a small

30:59

outfit run by a guy named Ira Bailey out

31:01

of New Jersey. He didn't agree to an

31:03

interview with us, but he sent an email, he's been doing

31:05

this for 21 years. And

31:08

in a court document, the company

31:10

disputed Karen's description of their interactions, denied

31:12

any allegations of wrongdoing. And

31:15

check this out. Once Karen's lawyers

31:17

looked into First American National, they

31:19

found something else. A

31:21

state banking regulator had sanctioned the

31:23

company for operating as an unlicensed

31:25

debt collector. First American didn't admit

31:28

wrongdoing, but it was fined by the state

31:30

in order to stop. Karen's

31:32

lawyers alleged that it then foreclosed

31:34

on Karen's house anyway in violation

31:36

of that agreement. I'm not

31:38

really clear like why this these

31:41

people were able to foreclose when they weren't even supposed

31:43

to be practicing in the state because of their history

31:47

of what they've been doing. Buying

31:50

a home is the biggest financial decision

31:52

that most people ever make. After

31:54

thousands of dollars in a loan, backed by the place

31:57

that we live and sleep every night. That's

31:59

why after the the housing bubble collapsed, the government

32:01

worked really hard to try to keep

32:03

people in their homes and also to

32:05

try to fix the system. New

32:07

laws were passed, mortgages were modified,

32:09

and everyone moved on. But

32:12

now we're seeing that there's one

32:14

more thing that hasn't been fixed.

32:16

And that's that people like Karen,

32:18

the survivors of that financial crisis

32:20

who managed to keep their homes

32:22

15 years ago, those same people's

32:24

homes are now being threatened all

32:27

over again, thousands of them. And what can

32:29

you do as a homeowner like Karen, other

32:31

than fight it in court, beg

32:34

your public officials to do something and

32:36

just try to keep your life together. I

32:39

noticed when I came in, like your

32:41

yard is clean, you have like a

32:44

basket of like lovely purple,

32:47

pansy flowers, pansies on it. Yeah.

32:50

But you don't technically

32:52

own this house anymore. It's to my

32:55

house. Like it's on principle.

32:57

I'm still making payments. Yeah, I

32:59

don't. I still cleaning the yard. You're still

33:01

mowing the lawn. Yeah, it's still my home. This

33:12

episode was produced by Sam Yellow Horse Kessler.

33:14

It was edited by Jess Jang with help

33:16

from Bob Little. And it was fact checked

33:18

by Sierra Waddell. Engineering by

33:20

Robert Rodriguez with an assist from Patrick

33:22

Murray. Alex Goldmark is our executive producer.

33:25

Special thanks to Rachel seller, Robert

33:27

Benancasa, Nick McMillan, Grant Smith, Ashley

33:29

Messinger, Michael Ratner and Jay Patterson,

33:32

who is our fantastic forensic accountant

33:34

on this episode. He helped us

33:37

track Karen's heritage. I'm

33:39

Chris Arns and I'm Robert Smith. This

33:41

is NPR. Thanks for listening. ordering

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