Zombie mortgages coming back to life, threatening thousands of Americans’ homes

Karen McDonough sits inside her home in Quincy, Mass.

Vanessa Leroy for NPR

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Vanessa Leroy for NPR

Karen McDonough sits inside her home in Quincy, Mass.

Vanessa Leroy for NPR

Karen MacDonough of Quincy, Mass., was enjoying her tea one morning in the dining room when she sees something odd outside of her window: A group of people gathering on her lawn. A man with a clipboard tells her that her home no longer belongs to her. It didn’t matter that she’d been paying her mortgage for 17 years, and was current on it. She was a nurse with a good job and had raised her kids here. But this was a foreclosure sale, and she was going to lose her house.

Karen had fallen victim to what’s called a zombie second mortgage. Homeowners think these loans are long dead. But then the loans come back to life because they get bought up, sometimes for pennies on the dollar, by debt collectors who then move to collect and foreclose on people’s homes.

On today’s episode: An NPR investigation reveals the practice to be widespread. Also, what are zombie mortgages? Is all this legal? And is there any way for homeowners to fight the zombies?

This episode was hosted by Chris Arnold and Robert Smith. It was produced by Sam Yellowhorse Kesler. It was edited by Jess Jiang with help from Bob Little. And it was fact-checked by Sierra Juarez. Engineering by Robert Rodriguez with an assist from Patrick Murray. Alex Goldmark is Planet Money’s executive producer.

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Music: Universal Production Music – “Perpetual Mystery,” “Move As I Move,” and “Playing The Game”