Imagine this: You’ve been living in your house for years, perhaps even decades. Then, one day, you get a call, a letter, or a knock on your door and find out that your house is about to be foreclosed on.

over the last few years, more than 100 people in Connecticut have been in this situation, according to Jeffrey Gentes, an attorney with the Connecticut Fair Housing Center, wich provides legal advice and portrayal to people experiencing or fighting foreclosures.

People testified before the Connecticut banking Committee on Feb. 13, 2025, about proposed bill HB6878,”An Act Concerning Mortgage Foreclosures and undischarged Mortgages.”

During his testimony, Gentes said that the fair Housing Center has heard from more than 100 people in the last two to three years who learned they didn’t own their homes as they thought and were threatened with foreclosures. He noted that almost everyone who goes to the Fair Housing Center is referred there by another attorney frist, suggesting the actual number of affected homeowners could be much higher.

Currently, there are potentially hundreds of Connecticut residents who signed mortgage agreements between 2004 and 2008 and believe they have paid them off, but have not.

These people are victims of what are known as zombie mortgages, a mortgage where the lender stops collecting payments for years and stops sending notices, then tries to reclaim the house after equity has accumulated or the property has increased in value.

Loraine Martinez Bellamy, a housing attorney with the Fair Housing Center, explained, They were written and loaned out, and then they stopped collecting on them for, sometimes up to 20 years. So, as these loans pop back up, they’re putting many homeowners at risk of foreclosure and at losing their homes based on loans that they thought had been settled or released, or forgiven in the past.

The Fair Housing Center is currently representing around two dozen people dealing with zombie mortgages, but Gentes estimates that there are dozens, if not hundreds, of cases being handled in courts in Connecticut right now.

Most people who end up with zombie mortgages fall into one of two categories: before the housing market collapse in 2007, they either signed two mortgages, one covering 80% of the cost of a house and the other, 20%, also known as an 80/20 mortgage; or they took out second mortgages after the market crash so they could keep their homes.

In both cases, the problem lies with the second mortgage.

Second mortgages are a type of junior lien.If a person defaults on their debt, their first mortgage, or senior lien, needs to be paid off first, and then whatever is left over goes to the second mortgage. Sence there is a higher risk of a second mortgage not being paid out in full, mortgage lenders tend to charge higher interest rates.

according to Connecticut statutes, when a person modifies their first mortgage, the second mortgage is not automatically changed, and sometimes the lenders aren’t even notified.

Bellamy stated that many people were unaware of this.When her clients renegotiated their mortgages with banks after the housing market collapsed, they assumed both mortgages were a package deal.

The majority of the cases in mediation (in Connecticut) are first mortgages,and the majority of first mortgages are insured by the federal government,by FHA,by Fannie Mae,by Freddie Mac,by VA,and those agencies set very specific loss mitigation programs to help homeowners keep their homes and be able to afford a new mortgage payment, Bellamy said at the Banking Committee’s public hearing on Feb. 13.

She added,The second mortgage holders that we are concerned about and that we have been helping homeowners litigate against and defend their foreclosure cases,they are not obligated by agencies to provide any settlement at all.

Essentially, there is a carve out in the law allowing for this lack of dialog to occur.

During the Great Recession, many people renegotiated their mortgages or took out a second mortgage. Their rates spiked, but they eventually paid them off—or so they thought.

Most times, ten, fifteen years, the homeowners just didn’t hear from these lenders at all, Bellamy told Inside Investigator. These loans were written… right before the financial crash, so a lot of them were forgiven or were released by the mortgage lender, because they didn’t have any value because nobody had any equity in their property at the time.

Bellamy said that some borrowers thought that their loans had been forgiven or packaged with their first mortgage, because that’s exactly what was happening during that time period.

In a statement submitted for public hearing on HB6867, Tom Mongellow and Art Corey—who both testified at the public hearing against the proposed bill—and Fritz Conway pointed out that Connecticut has a robust mediation process, foreclosures are usually a last resort for lenders and that it takes multiple missed payments to default on a mortgage. All three men are members of the Connecticut Bankers Association.

They wrote, Mortgage contracts are long-term agreements, ofen spanning decades, and lenders must have the ability to enforce these agreements when necessary.

While Mongellow and Corey weren’t strictly opposed to regulating zombie mortgages on their own, they were concerned that the proposed law, as written, could be used with all types of mortgages.

Behind the scenes, these second mortgages were often sold from debtor to debtor, without the knowledge of the person living in the house. Many of these mortgages wound up in pools with obscure names, according to Bellamy.

Under (the Real Estate Settlement Procedures Act), you’re now required to give notice of servicing transfers. But when many of these loans were transferred, RESPA [regulations about this] didn’t exist, Bellamy said.

Although RESPA was created in the 1970s, there have been many updates since. It wasn’t until 2011 that lenders were required to let people know when their loans were sold.

For years, these mortgages were collecting interest and increasing in value. Typically, by the time a lender reached out to someone, the loan had increased by three to four times its initial worth, Bellamy estimates.

The mortgages themselves, the 80/20s, were predatory, Bellamy said. A lot of these mortgages have 11% to 12% interest rates, and that’s why you see folks borrowing $30,000 on that 20 loan in 2005, and now the balance has ballooned up to $120,000.

Bellamy spoke to more than a dozen people in this situation during the last few months, she told Inside Investigator in an interview in April. Most of them live in New Haven, Bridgeport and other inner-city areas.

Most of the people facing foreclosures because of their second mortgages are Black or Latino and over the age of 60, according to Bellamy. These people were sold 80/20 mortgages in the 2000s,she said.

80/20 mortgages were popular between 2004 and 2008 because they increased the number of people who were able to get mortgages. In most cases, when someone takes out a mortgage on a house, they make a downpayment. But, with 80/20 mortgages, they avoid that initial upfront cost. Though, there was a trade-off: the second mortgage had a higher interest rate to compensate for the greater risk a lender faces.

Bellamy is working with five to 10 people who are dealing with zombie mortgages, and all of them are in their 60s, she said. All of them also signed a mortgage between 2004 and early 2008, when these practices were common. She believes that they should not have qualified for these mortgages in the first place.

The first wave of second mortgages came back to life in 2020 and the foreclosures started.