Connecticut homeowners will be protected from foreclosure threats tied to long-dormant second home loans, often referred to as “zombie mortgages,” under legislation signed into law this week by Gov. Ned Lamont.
The new law, introduced by Sen. Pat Billie Miller, a Stamford Democrat who co-chairs the legislature’s Banking Committee, places a 10-year statute of limitations on the collection of second mortgage debt when lenders have stopped communicating or have taken no action to collect. The bill, SB 1336, received near-unanimous approval in both chambers of the General Assembly.
The legislation was intended to respond to a recent trend: as housing prices have rebounded in the wake of the 2008 financial crisis, companies that purchased old second mortgages — many of which borrowers believed were forgiven or resolved — have begun pursuing repayment and, in some cases, foreclosure. These loans are often sold to third-party debt buyers after being written off by the original lender.
“This bill protects our homeowners from foreclosure threats based on debt that’s been dormant for more than a decade,” Miller said following the bill’s passage. “The change puts Connecticut in alignment with national trends as states across the country move to shield consumers from the delayed impact of predatory lending practices.”
The bill was inspired in part by a constituent who contacted Miller after receiving a foreclosure notice from a company he had never heard of, the senator said. The company had purchased his second mortgage and was now seeking repayment with accrued interest, years after the borrower believed the debt was settled.
“No one making reliable payments on their primary mortgage should face foreclosure because someone made an opportunistic decision to resurrect a secondary loan, years after deciding that collection wasn’t worth the effort when property values plummeted in the aftermath of the 2008 financial crisis,” Miller said.
With Lamont’s signature, Connecticut joins a growing number of states enacting time limits on the enforcement of so-called zombie mortgages. The law will take effect on Jan. 1.
