A group of investment companies that bought up old, dormant New York mortgage debt has agreed to pay $482,000 in penalties and restitution after suing roughly 140 homeowners over loans taken out in the years before the 2008 financial crisis. The settlement, reached with the state, also bars the companies from ever trying to collect on that expired debt again.
Attorney General Letitia James announced the deal last Friday, resolving a case built around what the industry calls zombie mortgages. As reported by Newsday, her office's investigation found that the companies had purchased thousands of defaulted zombie mortgages and then pursued homeowners for payments on debts that were past New York's six-year deadline for bringing debt-collection lawsuits. Many of the loans in question were second mortgages, taken out alongside a primary loan in the run-up to the housing crash.
The term itself comes from how these debts behave. According to guidance from the Consumer Financial Protection Bureau, zombie mortgages are old debts that homeowners believe their lenders forgave or that they'd already paid off years earlier, only for the obligations to reemerge later in lawsuits brought by debt buyers who purchased the loans for pennies on the dollar. The Attorney General's Office said many of the affected New York homeowners believed they no longer owed on these loans either because of a prior modification or because their original lender had simply stopped collecting payments.
What the Settlement Actually Changes
Under the agreement, the companies are now barred from seeking payment on debt for which the statute of limitations has run, and they must modify any pending foreclosure lawsuits to strip out the time-barred portions of the claims. The settlement names more than a dozen limited liability companies and trusts, including Southern MBA Trust, NS194 LLC, BCMB1 Trust, First Age LLC, and Second Start LLC.
Homeowners Nationwide Still Facing the Same Threat
New York's case lands amid a much larger national pattern. A 2025 Bloomberg News investigation found that more than 600,000 second mortgages issued in the years before the financial crisis could still pose a threat to borrowers, a figure later cited by The Independent in its own reporting on the practice. Bloomberg has reported that rising home values have made these old, mostly forgotten second mortgages newly attractive targets for debt collectors, noting that home equity nationwide swelled from $5.3 trillion in 2009 to nearly $17 trillion more recently.
Bloomberg's reporting, drawn from internal records obtained from a debt collector, described an industry pattern of using large bills and foreclosure threats to catch homeowners off guard across the country. One case detailed in that reporting involved a California couple, the Amables, who lost their three-bedroom home in Pacheco to foreclosure in 2021 after a debt collector claimed they owed roughly $200,000 on a second mortgage.
State responses to the problem have been inconsistent, and accounts of exactly how many states have acted differ. Bloomberg reported that four states had passed legislation addressing predatory practices tied to zombie second mortgages, while The Independent reported that five states — California, Connecticut, Massachusetts, Ohio and Virginia — had enacted laws targeting zombie-mortgage collection tactics.
Resources for Homeowners Who Suspect a Zombie Debt
New York homeowners who believe they are facing a potentially improper foreclosure can file an online complaint with the Attorney General's Office, which can also be reached at 1-800-771-7755. Nonprofit housing counselors are also available to assist homeowners navigating a foreclosure action tied to old or disputed mortgage debt.
