S
enator Elizabeth Warren (D‑MA) has demanded records from the independent monitor of the 2012 National Mortgage Settlement, a $25 billion program that aimed to curb foreclosure abuses after the 2008 crisis. In a letter dated September 4, 2025, she asked Joseph A. Smith Jr. to turn over any documents showing how second‑mortgage and HELOC loans were “extinguished” under the settlement and any correspondence with banks about those extinguishments, with a deadline of January 7, 2026.
These “zombie mortgages” arise when lenders stop collecting on second loans or home‑equity lines that homeowners believed were cancelled following the financial collapse. Yet the loans are sold to debt buyers for pennies on the dollar. The buyers then resurrect the debt, sending payoff letters that inflate principal with fees, turning a $15,000 loan into a $45,000 demand. Homeowners, many of whom had received tax forms years earlier indicating cancellation, are suddenly faced with unexpected bills or foreclosure notices.
Bloomberg’s investigation of more than 5.5 million piggyback mortgages issued between 2002 and 2008 found that roughly 600,000 of those second loans remain active. In some cases, collection agencies violated consumer‑protection statutes by charging back‑interest for periods when no statements were issued. The agencies also took advantage of the fact that some lenders had stopped servicing the loans, allowing debt buyers to profit from rising home values.
Warren’s letter highlights that banks may have been credited for extinguishing second mortgages in the settlement when, in fact, they sold those loans to collectors. She notes that homeowners who stopped receiving statements and had tax documents confirming cancellation were still foreclosed upon. “Companies purchased millions of dollars of these second mortgages and waited to collect until home prices rose,” she wrote. “Now, Americans who thought they were doing everything right learned, in many cases years later, that debt collectors were going to foreclose on their homes.”
The settlement itself was negotiated between the Department of Justice, 49 state attorneys general, and the largest mortgage servicers. While federal law governs lending disclosures and debt‑collection practices, the enforcement of liens, recording systems, foreclosure procedures, statutes of limitation, and lien priority remains a state responsibility. As a result, states have begun to act on the problem. California, Connecticut, and Virginia have recently passed legislation targeting zombie‑mortgage abuses. A Massachusetts bill is under judicial review, and Maryland lawmakers plan to introduce similar measures this year.
Senior economist Joel Berner of Realtor.com® explains that the original lenders stopped collecting, but when the loans are sold, they “come back to life,” adding uncertainty to homeownership at a time when affordability is already strained. Chad D. Cummings of Cummings & Cummings Law in Florida notes that debt buyers can inflate principal with fees, turning a modest second mortgage into a large, unexpected debt.
Cummings points out that mortgage enforcement historically belongs to state law, not federal law. “Federal law touches lending disclosures and debt collection, but it rarely rewrites who owns a lien or how title clears,” he says. This division of authority raises the question of whether federal enforcement is appropriate or whether state‑level action is more effective.
The bottom line, according to Cummings, is that zombie mortgages are a growing problem that will only intensify in 2026 and beyond. The only real question is whether federal or state enforcement will best protect homeowners. Warren’s request for records and the legislative responses in several states signal a growing recognition that these dormant debts can wreak havoc on families who believed their mortgages were settled.
