Zombie Mortgages

The Note's Dead - The Lien Lives

The Note’s Dead – The Lien Lives

FACT: This article has nothing to do with the zombie fiction currently populating bookstore shelves.

FACT: I am not an attorney; I do not provide legal counsel. In addition to being an expert witness, I am an expert credit advisor as well as an expert on refinancing home loans following Chapter 7 Bankruptcy and while in Chapter 13 Bankruptcy.

What is a Zombie Mortgage?

Zombie Mortgage Notes are the Promissory Note(s) of home mortgages which have been Discharged in Chapter 7 Bankruptcy and continue to be paid (or not) on a purely voluntary basis by the debtor. In many cases, I see folks paying both the Discharged 1st mortgage as well as the Discharged 2nd mortgage. I am prompted to expand on this subject due to the number of recent callers who do not understand that the Note(s) was(were) legally nullified. Regular readers’ likely recall that I first wrote of this phenomenon in December of 2010 in an article titled Living Underwater After Bankruptcy.

Zombie Notes Do Not Credit Report

Given that the Note is, umh… dead, the credit reporting agencies have nothing to report. There is no credit instrument against which the creditor can report. And, this is a biggie, if the Discharged mortgage servicer were to report the mortgage as still paying late, that could be considered as attempting to collect a Discharged debt. This is a big legal no, and no or no. Should you discover such on a valid credit report, you may wish to consult your bankruptcy attorney for a referral to a consumer protection attorney.

Can A Zombie Note Be Refinanced?

Yes. However this depends on several limiting factors which are discussed in my blog titled Refinance After Chapter 7?.

Question – Can this be done by any licensed, bonded and insured mortgage loan originator?

Answer – Not realistically. You need a specialist. This will require a highly seasoned lender who knows how to document, package and process a Zombie Note for a  rate/term refinance loan approval. There are no cash-out refinances of Zombie Notes.

Living With A Zombie Note

Those in Zombie Note situations must really like love where they live. There are no home improvement loan opportunities available. If there is no equity, there is no opportunity to refinance, so you should truly prize your current monthly housing payment. An ordinary sale will be difficult if not impossible so, in effect, one is frozen into their present location and housing. For some, this works. For others, it is merely prolonging the end of a cycle, and avoiding the opportunity of gaining a new beginning. And perhaps it is simply about keeping up the “image”, as though no one else in the country is in trouble financially. Good grief.

Caution: One of the highest needs is to make sure the personal property, real property and liability are insured against loss. Openly discuss your situation with your insurance agent. Understand you may need a specialty insurance agent due to the particulars of living with a Zombie Mortgage.

Zombie Note Equals “Renting” Without Benefit Of A Landlord

In many cases, one choosing to live with a Zombie Mortgage has, in effect, become a tenant without the benefit of a landlord. Should the water heater need replaced the resident is responsible for all upkeep and maintenance as an out of pocket expense. How would you feel about replacing the HVAC system to benefit the bank or the next owner?

A Fresh Start – How Now?

So now we know, the rest of the mortgage (the Deed of Trust) still needs to be reckoned with. It is still attached to the property, and requires legal resolution before one can begin mortgage credit recovery. The longer it takes for the foreclosure or short sale to occur, the longer it takes for your credit to heal. There may come a time, so to speak, to remove the life support system of voluntary payments on Zombie Notes and allow the natural financial/legal actions to occur.

Update March 2, 2016 – When the Bank Discontinues Foreclosure Proceedings per the FDIC.

Image attribution

Financially Speaking™ James Spray, CNE, FICO Pro | October 1, 2011
CO LMO 100008715 | NMLS 257365 |

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

28 comments on “Zombie Mortgages

  1. James Spray says:

    On another note, Zombie homes plague neighborhoods – http://tinyurl.com/68geayx


  2. Matt Berkus says:

    Perfect summary, nice to read the content from the horses mouth, so to speak 🙂


  3. James Spray says:

    Clarification: If a voluntary payment is made on a discharged debt, it is certainly not a gift, it is applied to an obligation.


  4. Immense post. Thanks for sharing.


  5. […] Refinance After Chapter 7 Jan12 by James Spray You filed a Chapter 7 Bankruptcy and your debts were discharged. You have continued paying on your mortgage and now you want the payments reported on your credit report. Without exception that is not going to happen. The fact is that there is but one permanent way to get your mortgage payments reported on the credit reports and that is to refinance. When your bankruptcy was discharged, the Promissory Note portion of the mortgage was legally eliminated. As a result, the mortgage payments can no longer be reported to the credit reporting agencies. Consumers, for obvious reasons, cannot self-report their own credit history. For further information as to why the bank or mortgage company doesn’t report your payment, refer to an earlier post I wrote on this subject. […]


  6. James Spray says:

    ” . . . In some cases, mortgages that were supposed to die off in a refinancing are popping back up, while in others, the loans were paid in full. Homeowners who pay off their houses through bankruptcy programs are also falling prey.” . . .

    Old mortgages rise from the dead, haunt homeowners | Reuters ~ http://tinyurl.com/6py4bu7


  7. Michael Cordova says:

    Mr. Spray I spoke to you over the telephone several weeks ago recommended by my bankruptcy attorney Guy Humphries who filed my chapter 7 bankruptcy that became court discharged in February 2, 2010.

    My name is Michael and we spoke about my current residence, Denver, 80221 and now a Zombie Loan by bank definition. When we spoke you informed me about the status of my mortgage and was quite a surprise to hear that the longer I stay at this property it isn’t helping with improving my credit score after bankruptcy as I thought initially as the mortgage companies, Bank of America and Bellco Credit Union are “dead” loans; I now realize I need to make plans and move on.

    I need your help and and would like to make an appointment with you to discuss my concerns, plans and options available to me with making such a move. I will pay you for your consulting services, please let me know of your availability. For the next several weeks I am off from my job Mon and Tues anytime.

    Thank You,



  8. James Spray says:

    Special Report: The latest foreclosure horror: the zombie title Five years ago, Keller, 10 months behind on his mortgage payments, received notice of a foreclosure judgment from JP Morgan Chase. In a few weeks, the bank said, his three-story house with gray vinyl siding in Columbus, Ohio, would be put up for auction at a sheriff’s sale.


  9. James Spray says:

    Here’s a reasonably informative video from a fellow in New Zeland titled Zombie Titles – More Horrifying Than Home Foreclosure which was published on, February 17, 2013.


  10. John Sanchez says:

    Mr. Spray,

    I really enjoyed gaining some additional insight from reading your blog about Zombie notes. My wife and I filed chapter 7 and was discharged in March of 2011. We purchased our 1700 square foot home in 2008 and have never missed a payment. We currently owe $108K on the home and it is now worth about 130K. We are located in California. Now that we are nearing two years post BK next month, I really am looking forward to the slim chance in getting someone to refinance the home. The home was never reaffirmed. Our attorney never really disclosed that our home loan was never reaffirmed. He basically told us that we would be able to keep the home because there was really no equity (at the time) that the BK trustee could go after to pay off our creditors. It was just recently that I found out that our loan was never reaffirmed. My wife and I was panicking thinking that our mortgage holder would be foreclosing any day…but when I called Wells Fargo, they told me that I would be fine as long as I keep current on the payments. I’m a bit OCD and I can’t help but think that Wells will try to kick us out even though we make our monthly payments on time…which is unlikely from everything that I’ve read. Well, our mortgage payment including taxes and insurance is $930 a month which is about the same as renting in our area. I have no intentions in moving and will probably stay in our home for the next 20-30 years. I only have the 1st mortgage on the home. I am not seeking for legal advise but if you could provide some feedback on how I could go about in getting refinanced…that would be great. Thanks in advance for any type of response.

    John in California.


  11. Maverick says:

    Here’s a twist… I bought a home in 2005. My business failed in 2008 and my home went into foreclosure. I filed Chapter 7 and the note was included in the discharge. Done. I moved out.

    2 years later I learned it never sold. My attorney advised I move back in until the bank kicked me out. I moved back in 2010, but moved out again in 2011 due to job location. I’ve been renting the house out in order to 1) cover costs for repairs, maintenance, HOA, etc, and 2) keep the place occupied so it doesn’t go to pot.

    In the meantime, I’ve tried both short sale and deed-in-lieu, but can do neither since there is a lien on the property (a discharged debt, I might add!).

    So my question: Have you heard of any resolution for people in my situation?


    • James Spray says:

      Hello Maverik –

      You are in a situation dubbed as Zombie Titles by a video blogger out of New Zeland. Note my comment below of 02/18/2013 referencing his blog. As you may note, you are not alone. Now to the crux of your situation with the limited information you provided.

      As discussed in Zombie Mortgages your Note was Discharged in the Bankruptcy. Howver the Trust Deed (also known as a Deed of Trust) lives on recorded against the property. This is the instrument that still binds you to the property, not the Discharged Note. You need a professional real estate agent that is specialized in short sales to unburden yourself of this Trust Deed via a short sale. The lender must approve the sale and will apply the short sale proceeds to grant a release of the Trust Deed.

      Unfortunately, the lender may not want to take the property back for any number of reasons. Be this the case, if the property is located in a Super Lien state (there are now more than 20) you will continue to be responsible for a certain amount of the HOA fees. You may wish to talk with the HOA to see if they wish to foreclose or accept a deed-in-lieu of foreclosure against the property. If so, I heartily suggest you retain a real estate attorney to make sure this is done properly in order to protect your best interests.

      Sadly, unless such time as the Trust Deed is no longer in your name you may find yourself locked out of the market to obtain another mortgage.

      I wish you success in dealing with this difficult issue.



      • Maverick says:

        Thanks for your quick response. I’m in WA, and I’ve been paying the HOA.

        Taxes have been paid by the Bank for the past 5 years and are current, but what happens if the Bank stops paying the taxes?

        Has there been any documented success in bringing suit against the Banks?


      • James Spray says:

        Washington is a super lien state, you may wish to do your own research on HOA super lien status in WA.

        Given the bank is paying the RE taxes, they may entertain a short sale. Worth a try. However should they cease paying the RE taxes, the RE taxing authority will ultimately dispose of the property to satisfy the tax debt. See: http://law.onecle.com/washington/property-taxes/ch84.56.html

        In general, about suing a bank, the one with the most money is generally always the winner. The cost of suing such an entity, if you have grounds for a lawsuit, could cost you well north of $40,000 with no guarantee of winning.

        Reread my blog and my first response to your query. Again, best wishes for success!


  12. Ed R says:

    I have not filed bankruptcy but received a letter from HSBC saying that they were not going to foreclose and we would retain the property and we were to pay all taxes and insurance on the property. I tried to call them and could not get a call back. What has happened. I don’t know what to do or think. I don’t know where to send payments to or if any. The letter said I am still liable to pay HSBC according to the original note and I’m 10 months behind. I was injured and could not work for the period in question/ I’m not back to work and can make my regular payments but not the delinquency. I know that you are not an atty but I don’t know what to do. I live in Cleve Oh.


    • James Spray says:

      Hello Ed –

      For whatever the reason(s), it sounds like HSBC may have determined they do not want your property. You need a Real Estate Attorney that is very familiar with Loss Mitigation and perhaps Quiet Title. Loss Mit and Quiet Title are not specialities of all Real Estate attorneys so call and ask questions. Spend nothing on a retainer without getting a good feel that you may have someone that knows about that which you are experiencing. You want a ‘transactional’ as opposed to a ‘litigational’ attorney. By spending a little money now, you may end up with a free and clear property on which you only need to pay property taxes and insurance. This is what I found on a simple Google Search for Real Estate Attorneys in Cleveland, OH.

      Income Tax ramifications regarding the actions of HSBC also need to be considered. So another item you will wish to discuss with the Real Estate Attorney is the term insolvency as it relates to IRS Form 982 as well as IRS Publication 4681 as it relates to: Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). These are different than the Mortgage Debt Forgiveness Act, yet each should be taken into account with your decision.

      I wish you success!


      • Ed R says:

        Thanks for getting back to me so quickly. I am more than willing to make my mortgage payments. and am able to do so now. I however will try calling them one more time and see what happens. and if no answer I’ll get ahold of an atty to see what to do. Again thanks.


  13. Ed R says:

    Oh yea, Forgot to mention that they were releasing the lien on the property also. Whatever that means.


  14. Ed R says:

    I found it. Thanks


  15. Richard Helton says:

    In your refinance after chapter 7 you answered someone that they could sell just like anyone else, but in this post you indicate that it is difficult to sell the house?

    I filed chapter 7 here in CA last month, I’m current on the mortgage and my bk attorney said NOT to reaffirm.
    The loan is NOT VA, or FHA
    I owe 170k but recent sales indicate I have equity with the value ranging from 200k-220k

    So can I ever refinance?
    What about selling it and buying another home in 2, 5, or 10 years?


    • James Spray says:

      Hello Rick –

      Most of the folks with no or negative equity will find selling difficult as they may not have the funds to cover the cost of sale. However if there is sufficient equity to cover the cost of sale there should be no great difficulty in selling the house.

      On refinance: Read the blog referenced in Zombie Mortgage titled Refinance After Chapter 7? to see that refinance may be possible for a non-government insured loan seven years after the Chapter 7 bankruptcy discharge.

      On your final question: Once you have sold the current property, providing there is no shortage to the lender, you may become eligible to purchase another home as soon as two years following your Chapter 7 Discharge. On this, you will find additional information on the chart in my blog titled How long after bankruptcy or foreclosure must you wait to get a mortgage?

      Best wishes for success –


  16. Nathaniel S. Hardy, Jr. says:

    Mr. Spray,

    If it weren’t for bad luck I would not have any luck at all! However I really enjoyed gaining some additional insight from reading your blog about the “Zombie Notes”. I filed for Chapter 7 on 14 November 2011 and was discharged in 24 February of 2012. My wife and I divorced just signed the divorce papers in 8 August 2013. We purchased our 2,875 Sq. Ft. home in 2009 and I have never missed a payment. I (since my wife moved out in 19 November 2011) currently owe $143K on the home and it is now worth about 113K. I live in Georgia. Now that we are nearing two years post BK next February, I really am looking forward to the slim chance in getting someone to refinance the home. The home was never reaffirmed. My attorney explained to me about how I should never “Reaffirm the Debt”. They basically told me that I would be able to keep the home. As the BK Judge told me “You pay, you stay and since you are not “Reaffirming the Debt” when you get tired you call the bank and “walk away”. usbank sent me a letter stating “one of you Mortgagee’s have filed for BK…” they knew who it was!!! They told me that I would be fine as long as I keep current on the payments. (In the words of the BK Judge “You pay, you stay…) Well, our mortgage payment including taxes and insurance is $1,119/mo. which is about the same as renting in our area. I have no intentions in moving right now, however I do have a Realtor friend on notice should I not decide to stay in the house as I am not helping myself by staying in a house where I am not getting credit for paying on this loan. Now that being said, here is my question: Could you provide some feedback on how I could go about in getting refinanced?


    • James Spray says:

      Hello Mr. Hardy –

      You may wish to read my blog Living Underwater After Bankruptcy as it appears much closer to your situation than my Zombie Mortgage blog.

      Regarding obtaining a refinance after two years, is your mortgage an FHA insured mortgage? I suspect not as you did not mention the Mortgage Insurance Premium when describing your payment. If so, it is possible to obtain a refinance two years post-Discharge. For detailed information on this read my blog Refinance After Chapter 7?

      If your mortgage not an FHA insured mortgage loan and if you can fit through all the hoops you may qualify for the New Improved Rules For Getting An FHA Mortgage After Bankruptcy. The qualification threshold is very high and if you do not meet the criteria, you are better off going back to reread my blog Living Underwater After Bankruptcy.

      Not sure this helps change your luck but it is what it is. I wish you the best.



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