How To Protect Yourself From Zombie Debt

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3:16Happy, happy Halloween, money rehabbers. It is the spookiest day of all the spooky season. So today I'm going to talk about something that actually terrifies me. Zombie second mortgages. Now, what are these exactly? They do sound made up, but trust me, they are very real. Imagine this. You're living your American dream. You're paying off your home. You're thinking everything is going great. And then, wha-bam, out of nowhere, your past comes back to haunt you. Zombie second mortgages are those forgotten about second mortgages that you might have taken out when you first bought your home, maybe even during those chaotic days of the 2008 financial crisis.

3:52This is the debt you thought was long gone. Maybe you even assumed it was forgiven or written off or just disappeared, but surprise, it is not really dead. It can come back to life because this debt can be sold to collectors who can then resurrect these mortgages and start chasing you down for payment, often with interest and fees tacked on. And here's the really, really scary part. Even if those fees and extra charges aren't totally legal, debt collectors will often still try to get them from you. In the worst case scenario, they could even foreclose on your home. I know it sounds like a nightmare, but before you start hyperventilating, here's something important you need to know.

4:30If you haven't heard anything about this mortgage debt for years and no one has contacted you, There's probably no need to panic. Legit debt collectors have to send you a notice. So if no one has reached out, you are probably fine. But if someone has reached out to you, you shouldn't just ignore it. I was just reading a story about a woman in Massachusetts who was just sitting in her living room when 20 people showed up to orchestrate a foreclosure auction on her home. She had been getting phone calls from debt collectors and just assumed that they were scammers. Here's where it gets complicated, though.

5:01There are scammers who pose as debt collectors. In the case of the woman in Massachusetts, they happen to be legit, but you can't assume that they are. There are scammers out there who love to use zombie debt as a way to trick people into paying money they don't owe. So if someone does try to contact you about old debt, you can't just ignore it, but you also can't just assume that they're being honest and pay whatever they tell you to pay. What you can and should do is ask the debt collectors to validate the debt. This is key. You have the right to request that the debt collector send you proof in writing that the debt is real and that it does indeed belong to you.

5:40It's like the debt certificate of authenticity. If the debt collector can't prove that, you can tell them to pound sand. That is your right. Okay, now that we've covered the haunted house part of this topic, let's zoom out because this isn't actually limited to just mortgages. Zombie debt is a term that's used for all kinds of old debt that just pops up out of nowhere. Credit card debt, medical debt, personal loans, you name it. This is debt that's usually long forgotten. Maybe it's even past the statute of limitations, but a debt collector buys this kind of debt for pennies on the dollar and tries to come after you for the entire amount.

6:16In some cases, they even come after you for debts that were already paid off or discharged in bankruptcy. Debt collectors thrive on the fact that people don't know their rights. So let's break it down. Here are three you need to know. Number one, if the debt is past the statute of limitations, which varies by the state, by the way, but could be anywhere from three to six years or longer, they legally can't sue you to collect. They can ask you to pay, but you are not legally obligated to do so. However, and this is critical, if you do make a payment, you might restart the clock on the statute of limitations, so please do not cave under the pressure to pay ASAP.

6:55Make sure you still owe the debt before or even making a small payment. Number two, you have the right to ask for written validation of the debt. I've said it before, it is worth repeating. Legit debt collectors are required to provide you with a debt validation letter, which should include the amount owed, who you owe it to, and proof that they are authorized to collect on it. This will also help you understand whether or not the debt has been canceled or is past the statute of limitations. Number three, if a collector tries to harass you or threatens you with things like wage garnishment or lawsuits without proper proof, that is not okay.

7:32The Fair Debt Collection Practices Act has your back. It limits what debt collectors can do, and it gives you the right to dispute any debt they claim you owe. It's also completely within your rights to set the terms around how the debt collector contacts you. So if they're calling you at your work number and you want them to call you on your cell, that is your decision to make. If they're calling you during the day and you'd rather talk after work, that is totally your call too. So validating the debt is so important that I've mentioned it twice now. And the natural question is, how do you do that?

8:04Well, it's a three-step process. Step one, when a debt collector contacts you, don't admit to anything right away because it could also restart the clock on the statute of limitations. Instead, ask for that debt validation letter. This should be done in writing, and I recommend sending it via certified mail to keep a paper trail. and it also buys you a little bit more time. Step two, once you get the letter, look very closely at the details. Does the amount seem right? Do you recognize the debt? Is it from a creditor that you've actually dealt with? And step three, if something looks fishy, you have the right to dispute the debt.

8:40In your dispute letter, ask for specific details like the original creditor's name, a breakdown of any fees or interest added and documentation providing that they have the right to collect. Remember, you don't have to face debt collectors alone, and they don't have all the power. You can and you should stand up for yourself. And in many cases, they'll back off if they realize that you know your rights. So net-net, whether it's zombie mortgages or zombie debt, the key takeaway here is don't let them scare you into paying for something you do not owe. You've got the law on your side here, and the more you know, the less terrifying these things become.

9:17For today's tip, you can take straight to the bank. If you find that the debt from the collector is valid, you can still negotiate it. Debt collectors would rather get something versus nothing. So you can be honest about what you can and you can't pay. Explain why and maybe they'll cut you a break.

9:36Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.

10:21Thank you.