Rose Prophete sits outside on the steps of her brick townhouse, Thursday, July 28, 2022, in the Brooklyn borough of New York. Prophete, a hospital technician who immigrated from Haiti in February 2000, was blindsided with a foreclosure action on the home she worked three jobs to buy and said"I will fight until my last breath.
Now they're being told the loans weren't dead after all. Instead, they're what critics call “zombie debt” — old loans with new collection actions. Splitting loans allowed borrowers to avoid large down payments. But the second loans could carry interest rates of 9% or more and balloon payments. Consumer advocates say the loans — many originating with since-discredited lenders — included predatory terms and were marketed in communities of color and lower-income neighborhoods.
Second loans were packaged and sold, some multiple times. The parties behind the court actions that have been launched to collect the money now are often investors who buy so-called distressed mortgage loans at deep discounts, advocates say. Many of the debt buyers are limited liability companies that are not regulated in the way that big banks are.
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