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The Connecticut Senate took action to address zombie mortgages. On May 15, senators nearly unanimously passed amendments to the proposed bill, SB 1336, or An Act Concerning A Study Relating to Banking Issues, which would impose a 10-year statute of limitations for zombie mortgages on one- to four-family dwellings.

Zombie mortgages are mortgages where the lender stops sending billing statements for long periods of time – sometimes 10 years or more – before attempting to foreclose on houses.

They mostly impact people who took out two mortgages on their houses as an alternative to making a down payment, almost always before the 2008 housing crash. After the crash, the owners of the 20 percent liens, which had higher interest rates and were less regulated than the 80 percent mortgages, stopped billing the mortgage-holders.

After the housing crash, mortgages were being renegotiated and forgiven, and these 20 percent mortgage debts were being sold – sometimes without the knowledge of the borrower. People lost track of these mortgages, either thinking they were forgiven or not knowing how to pay them. Over time, debt ballooned. Then, in 2022, lien holders started foreclosing on these houses.

“While someone signed a contract for a mortgage and agrees to pay it, the lending institution has an obligation to actually collect on that mortgage,” said Sen. Eric Berthel, R-Watertown, who introduced the amendments with Sen. Patricia Billie Miller, D-Stamford. “While some of this does not go retrospectively, we are looking at new mortgages, what we saw happening now was that property values had suddenly increased over the last few years and the so-called zombie mortgages which hadn’t been collected on because they weren’t worth the effort or the money to collect on, the lenders were now coming back after these borrowers.”

There may be hundreds of zombie mortgages in the state of Connecticut.

Unlike many other states, Connecticut does not track this data, according to Miller. Miller is the Senate chair of the Banking Committee.

“This amendment seeks to change that predatory practice by setting a statute of limitations on how long these mortgages are allowed to pursue collections on assigned second mortgages,” said Miller during the Senate discussion ahead of the vote. “The amendment bars the lender from bringing foreclosure action if ten years have passed, since either… the maturity date or final payment date of the mortgage, or the loan was secured, unless the date was formally extended in writing; or the last payment made by the borrower or on their behalf. Whichever of these two dates are earlier, the ten-year count starts.”

The original proposed bill was a “placeholder.” The amendments have become the entire bill.

If a law or temporary court order blocks the foreclosure starting in the eighth year or later, that time is added to the 10-year deadline. A 10-year foreclosure limit on first mortgages would take effect on January 2026. It would also not apply to second mortgages if they are still held by the original lender “or their successor,” according to Miller.

The proposed legislation would also reduce the minimum of undisputed possession time of a mortgage from 20 years, which is currently the case under state law, to ten years.

The sole dissenter to the bill was Sen. Rob Sampson, R- Cheshire.

Sampson said he was “sympathetic” to people with zombie mortgages, but borrowers are responsible for their own debts. He does not think it is appropriate to pass that payment off to other parties. Sampson also said there are already robust eviction protections in place to help people in vulnerable housing situations.

“I believe if you borrow money, you’ve got an obligation to pay it back, and if the lender doesn’t feel that it’s necessarily in their best interest to act on the money that’s owed, because they’re not necessarily going to get all their money back, or the value of the property isn’t worth pursuing the legal costs that are necessary to recover it, that’s their choice,” Sampson said. “I don’t think that should negate their right to recover money that’s been promised to them, that was agreed to be negotiated.”

Miller responded to Sampson’s remarks by saying, “By no means do I believe that people shouldn’t pay their mortgages, because if they signed that contract, they are responsible. But if you don’t know that you owe someone, how are you going to pay them?”

SB 1336 is now waiting for review in the House of Representatives,

This article first appeared on Connecticut Inside Investigator and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.