A new bill signed into law this month is set to protect some New England homeowners from foreclosure on years-old zombie seconds many likely had forgotten existed.
Connecticut Gov. Ned Lamont signed new legislation into law earlier this month that establishes protections for borrowers with
"This bill protects our homeowners from foreclosure threats based on debt that's been dormant for more than a decade," said co-sponsor Sen. Pat Billie Miller after it was approved in the upper chamber.
Why zombie mortgages are making news
Such secondary liens were a common offering prior to the Great Recession. Using the option, borrowers often took out a primary mortgage to cover 80% of the value, alongside a secondary loan for the remaining 20%. The strategy allowed many buyers to avoid purchasing mortgage insurance or reduced their down payment.
Plunging home values during the financial crisis drove many of those mortgages underwater, eventually leading many loans to be modified or forgiven. Homeowners assumed at the time their second liens fell under the same terms. particularly when servicers did not bother to collect when collateralized properties were worth less than the original loan values.
But the surge in housing prices to record levels over the past several years led to new-found interest on the part of banks and servicers in properties with such dormant secondary liens, which have been
In some cases, the loans have been sold multiple times since origination to servicing parties unfamiliar to the homeowner.
"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," added Miller, who also serves as chair of the Connecticut Senate banking committee.
The bill passed by votes of 35-1 in the Senate and 140-6 in the House. The law goes into effect on Jan. 1, 2026.
Zombies see regulatory scrutiny elsewhere
Connecticut's actions come as judges and state regulators sharpen their focus on servicer attempts to collect on such loans. Newrez subsidiary
In 2024, officials in neighboring Massachusetts also
Along with Connecticut, other states that offer some form of protection to borrowers with secondary liens include Virginia and Ohio. Massachusetts and California currently have bills pending.
