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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Scott and Kerry Amable

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Speaker 1: bought their first home in California's Contra Costa County in

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Speaker 1: two thousand and five, when their daughter was in junior high.

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Speaker 2: It was in a perfect location. It was like two

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Speaker 2: minutes from my parents' house from where I grew up,

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Speaker 2: so that was super nice.

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Speaker 1: It had three bedrooms, it was in a good school district,

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Speaker 1: and it was five hundred thousand dollars.

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Speaker 3: Like a lot of people at the time, they used

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Speaker 3: two mortgages to afford this house.

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Speaker 1: Noah Bouhier is a data journalist on Bloomberg's investigative team.

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Speaker 1: He says the first mortgage the Amables took out was

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Speaker 1: the bigger one. It covered about eighty five percent of

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Speaker 1: the purchase price, and the second, smaller mortgage, covered about

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Speaker 1: fifteen percent. The Amables lived in that house for the

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Speaker 1: next fifteen years, but then in the spring of twenty

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Speaker 1: two twenty one, the doorbell rang.

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Speaker 3: Scott Amobley answered his doorbell and there was a gentleman

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Speaker 3: standing there who informed him that this gentleman had bought

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Speaker 3: his house and the Amoblaze needed to move out.

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Speaker 1: Their home had been sold at a foreclosure sale.

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Speaker 3: They were just flat out in disbelief.

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Speaker 1: The Amablaze didn't understand how this could have happened. They

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Speaker 1: had been paying off their first mortgage for years, and

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Speaker 1: while they'd refinanced their second mortgage to pay for some

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Speaker 1: home repairs in two thousand and six. They had declared

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Speaker 1: bankruptcy a few years later and got a tax document

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Speaker 1: from their lender indicating that that second loan had been canceled.

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Speaker 1: But Noah says the debt came back to haunt them.

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Speaker 3: They were surprised. They knew that this old second loan

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Speaker 3: that they had taken out, that there was a debt

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Speaker 3: collector trying to collect on it for a variety of reasons.

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Speaker 3: The debt collector thought that they were still owed this money,

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Speaker 3: and not just the principle the Amoblaze had taken out,

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Speaker 3: but a decade plus of back interest, which took their

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Speaker 3: debt from about ninety eight thousand dollars to around two

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Speaker 3: hundred thousand dollars. And they didn't have this money.

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Speaker 1: The problem was whatever the Amablez tax documents said, their

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Speaker 1: lender had never released the lian on their.

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Speaker 3: House, and because that lean was still on their house

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Speaker 3: the debt collection firm was able to proceed with a

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Speaker 3: foreclosure and sell the house out from under them.

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Speaker 1: It's a nightmare scenario. A debt collector comes calling saying

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Speaker 1: an old loan you thought you could stop paying off

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Speaker 1: has suddenly come due with interest, and Noah says similar

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Speaker 1: scenarios are playing out all over the country. In the

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Speaker 1: past few years, a whole industry has emerged to try

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Speaker 1: to collect on old home loans that many homeowners had

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Speaker 1: understood to be canceled or forgotten. Noah and his team

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Speaker 1: got a trove of documents that gives new insights into

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Speaker 1: how one of these debt collection investment firms op rates

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Speaker 1: and how thousands of old second mortgages are now rearing

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Speaker 1: their heads.

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Speaker 3: What really struck me was just how these lending decisions

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Speaker 3: two decades ago are still affecting people twenty years on.

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Speaker 3: You know, I think a lot of the world has

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Speaker 3: moved on from the two thousand and eight financial crisis,

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Speaker 3: but the lending decisions that were made back then are

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Speaker 3: still affecting people.

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Speaker 1: I'm Sarah Holder, and this is the big tape from

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Speaker 1: Bloomberg News Today. On the show, an investigation into the

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Speaker 1: debt collection industry bringing zombie mortgages back to life. Noahu Hire,

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Speaker 1: an investigative data reporter, has been tracking the debt collectors

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Speaker 1: that are buying up a certain kind of secondary loan

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Speaker 1: loans that have some sinister nicknames sleeper seconds or zombie mortgages.

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Speaker 3: Generally, they are mortgages that folks took out in the

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Speaker 3: run up to the two thousand and eight financial crisis.

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Speaker 3: It was really common back then, for instance, for people

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Speaker 3: to get one bigger loan and then a smaller junior

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Speaker 3: loan that would obviate the need for them to have

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Speaker 3: a down payment.

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Speaker 1: As the housing bubble expanded, millions of Americans took out

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Speaker 1: these second mortgages. But then when the market crashed, many

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Speaker 1: homeowners were underwater. Homeowners like Scott and carry a mobling well.

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Speaker 4: As the economy tanked. For me, business goes down. I'm

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Speaker 4: in the automotive industry, so you know, people heard they're

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Speaker 4: trying to ride their cars out longer and not do

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Speaker 4: the same amount of repairs in their car.

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Speaker 1: Scott says, like a lot of families, they had to

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Speaker 1: make tough decisions about which bills to prioritize.

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Speaker 4: Well, we ultimately looked into what aretions were and I

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Speaker 4: knew that the first mortgage was ultimately the key player

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Speaker 4: in our home ownership, and the second was more or

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Speaker 4: less a rider on the back of that, So.

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Speaker 2: We decided to keep it the first, not pay the second.

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Speaker 1: Those secondary loans also became lower priority for many lenders

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Speaker 1: because home prices had fallen so much during the financial

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Speaker 1: crisis that in some cases lenders figured they wouldn't be

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Speaker 1: able to make their money back even if they took

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Speaker 1: possession of the property and sold it.

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Speaker 3: You had years in which lenders had no incentive to

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Speaker 3: go after these loans, And what ultimately happened is that

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Speaker 3: the banks they stopped sending borrowers' statements, and in some

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Speaker 3: cases they even issued tax documents to borrowers saying that

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Speaker 3: these loans were canceled.

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Speaker 1: Those tax documents are known as ten ninety nine c's.

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Speaker 1: They mean a bank has written off alone as a loss.

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Speaker 1: The forum even has the words cancelation of debt in

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Speaker 1: boldfaced letters written on top. After falling behind on their

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Speaker 1: second loan, the Amoablaze filed for bankruptcy, and soon after

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Speaker 1: the bank sent them two of these ten ninety nine seas,

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Speaker 1: one for Scott and one for Kerry.

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Speaker 2: We received the ten ninety nine from flag Star, the

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Speaker 2: cancelation of debt.

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Speaker 5: We submitted it tors and I think that was it.

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Speaker 5: I mean, I just assumed that that debt had been

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Speaker 5: written off completely.

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Speaker 1: The amables also stop seeing the loan show up on

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Speaker 1: their credit report, but Noah says none of that meant

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Speaker 1: they were fully off the hook.

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Speaker 3: Just because someone hasn't been getting statements doesn't necessarily mean

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Speaker 3: they don't owe the money. So one of the big

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Speaker 3: things that barwers want to look for is that the

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Speaker 3: lean that was placed on their property related to the

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Speaker 3: mortgage was actually reconveyed or released.

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Speaker 1: So in some cases the bank is forgiving the loan,

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Speaker 1: but they forget or they failed to clear the lien.

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Speaker 3: Yeah, the missing step is that the lender needs to

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Speaker 3: go to the county and record a document saying that

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Speaker 3: the lien has been released.

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Speaker 1: In the Amobli's case, the lien on their home hadn't

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Speaker 1: been released, and what they didn't realize was that their lender, Flagstar,

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Speaker 1: had sold their debt to a debt collection firm in

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Speaker 1: twenty sixteen. Flagstar declined to comment when debt collectors came

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Speaker 1: calling the Amoblis just kept sending them that tax document.

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Speaker 3: Oh.

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Speaker 4: We eventually started getting notices from different servicing companies on

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Speaker 4: the second mortgage that they were pursuing for payment, and

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Speaker 4: my wife submitted, you know, the ten ninety nine.

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Speaker 5: And then maybe a year later, a year and a

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Speaker 5: half later, I get a new statement from a company

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Speaker 5: and we submit the same letter with the ten ninety

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Speaker 5: nine and same process.

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Speaker 3: Lenders and debt collectors have argued and courts have upheld

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Speaker 3: this in many cases that those cancelation of debts, those

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Speaker 3: IRS forms are administrative files. The lenders are required to

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Speaker 3: send them out in certain circumstances, and they don't always

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Speaker 3: cover a barwers' bases and represent that the loan has

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Speaker 3: been fully forgiven.

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Speaker 1: Thea Moblis told Noah their initial approach to these debt

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Speaker 1: servicing companies worked for years, but as the housing market

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Speaker 1: recovered and home values rose, that changed.

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Speaker 3: So things bottomed out in the housing market nationally in

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Speaker 3: around twenty twelve. By twenty sixteen, nationally, home prices had

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Speaker 3: reached their pre crisis peak. So if you're the owner

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Speaker 3: of one of these old second mortgages after out twenty sixteen,

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Speaker 3: you're looking at home values and realizing if I foreclose,

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Speaker 3: there's money there in the actual underlying asset.

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Speaker 1: This realization has led to the rise of an entire

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Speaker 1: industry of investment firms who focus on buying up these

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Speaker 1: second mortgages, and one of those firms, the one that

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Speaker 1: bought the Amablas mortgage, is called RCPE.

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Speaker 3: RCPE bills itself as an asset management firm. They are

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Speaker 3: real estate investors, but what they spent a lot of

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Speaker 3: time doing over the past decade was buying up portfolios

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Speaker 3: of residential mortgages, and a lot of them were these

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Speaker 3: old second mortgages.

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Speaker 1: Noah and his colleagues got access to nearly a million

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Speaker 1: ARCPE internal company documents from Distributed Denial of Secrets, a

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Speaker 1: nonprofit journalism organization also known as DIDOS. DIDOS receives and

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Speaker 1: archives leaked and hacked information in the public interest. Bloomberg

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Speaker 1: verified the information, cross checking it against data provided by

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Speaker 1: ADAM Data Solutions, a real estate data company that collects

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Speaker 1: public ownership and transaction records for properties nationwide, and they

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Speaker 1: also spoke with experts, homeowners, and people with knowledge of

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Speaker 1: ARPEES operations. Those documents and that reporting gave them an

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Speaker 1: unprecedented inside view into how Arpe works.

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Speaker 3: They tended to buy these in pools of loans, a

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Speaker 3: couple hundred here or maybe a thousand there, and over

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Speaker 3: time they were able to accumulate this portfolio of several

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Speaker 3: thousand second lean mortgages from before the crisis.

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Speaker 1: After buying the loans, the company's next step was figuring

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Speaker 1: out which loans would be best to collect on, and when.

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Speaker 3: They hired underwriters to basically comb through all the history

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Speaker 3: on these loans, and they really scrutinized this stuff in

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Speaker 3: a very system at way because their returns were going

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Speaker 3: to be better if they could pinpoint which loans were

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Speaker 3: best to pursue.

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Speaker 1: And then they had to figure out a way to

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Speaker 1: get people to pay.

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Speaker 3: They use third parties in many cases, like servicing firms

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Speaker 3: and law firms around the country that would help them

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Speaker 3: send these demand letters and threats of foreclosure.

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Speaker 1: Sometimes Arcpe did move to foreclose, like with the amblas,

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Speaker 1: but often these threats were just that threats. Arpe just

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Speaker 1: used the possibility of foreclosure to get borrowers to start

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Speaker 1: paying back their debts or their debts plus interest. And

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Speaker 1: Noah says, that's how a lot of these firms tend

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Speaker 1: to operate.

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Speaker 3: Oftentimes, the resolution on these is that a borrower negotiates

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Speaker 3: a discounted payoff. Now, what the borrower doesn't know in

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Speaker 3: that case, and what this trove of data from arc

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Speaker 3: really reveals is that the debt investor are often making

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Speaker 3: out really handsomely even if they don't get the full

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Speaker 3: amount that they're requesting. And that's because in many, many cases,

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Speaker 3: they're able to buy these old loans for ten cents

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Speaker 3: or less on the dollar.

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Speaker 1: Noah and his team looked at about eight hundred and

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Speaker 1: fifty old second mortgages that Arcpe had received some form

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Speaker 1: of resolution on. About three quarters of those were profitable.

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Speaker 1: Noah spoke with arpees managing partner David Gordon about the

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Speaker 1: company's approach.

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Speaker 3: He told us, in no uncertain terms that Arcpe follows

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Speaker 3: the law. A debt is a debt. People borrowed this money,

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Speaker 3: they have a contractual obligation to pay the money back,

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Speaker 3: and in the majority of cases which the data backs up,

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Speaker 3: they try to reach a resolution before foreclosing on people.

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Speaker 3: It's actually not in their best interest to take people's homes.

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Speaker 1: Arcpe is only one of many debt collects companies pursuing

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Speaker 1: zombie second mortgages in the US, and the potential scale

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Speaker 1: of the zombie mortgage problem is much larger. Bloomberg analyzed

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Speaker 1: property records across the US and found that more than

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Speaker 1: six hundred thousand second mortgages issued in the years before

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Speaker 1: the financial crisis could still come back to haunt borrowers.

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Speaker 3: Now, in the scheme of the broader mortgage market, like

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Speaker 3: a couple hundred thousand loans is actually not that huge,

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Speaker 3: But when you get down to the level of individual

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Speaker 3: borrowers and understand how much this up ends people's lives,

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Speaker 3: it's really rather staggering.

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Speaker 1: When we come back the rules and regulations that govern

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Speaker 1: the zombie mortgage debt collection industry and how the regulatory

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Speaker 1: landscape is changing under the second Trump administration, Bloomberg's Noah

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Speaker 1: Bohier has been closely tracking firms like ourpe, firms that

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Speaker 1: buy old home loans and try to collect on them.

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Speaker 1: He says, while there are some state and federal laws

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Speaker 1: that apply to their practices, the protections are a patchwork.

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Speaker 3: So every state is going to have rules and regulations

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Speaker 3: around how long after a debt comes due that a

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Speaker 3: creditor can seek repayment. On top of that, we have

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Speaker 3: several federal laws that come to bear on zombie mortgage collection.

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Speaker 3: The two biggest are the Truth and Lending Act and

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Speaker 3: the Fair Debt Collection Practices Act, and both of those

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Speaker 3: have things to say about whether back interest can be

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Speaker 3: assessed during periods when borrowers weren't getting statements, and the

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Speaker 3: kind of tactics that debt collectors can use to get

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Speaker 3: people to pay money back, and the regulations surrounding both

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Speaker 3: of those laws are incredibly complex and an area of

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Speaker 3: significant dispute between the debt collection industry and consumer advocates.

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Speaker 1: How effective are these laws at protecting homeowners from predatory tactics.

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Speaker 3: Well, I think what our investigation shows is that they're

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Speaker 3: riddled with holes and that people are paying sums that

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Speaker 3: they likely don't go. People oftentimes have trouble fighting these

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Speaker 3: collections efforts because the laws are so complicated and the

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Speaker 3: average person has trouble unpacking all the different moving parts

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Speaker 3: and mounting the best defense.

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Speaker 1: And hiring a lawyer to help mount that defense can

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Speaker 1: be expensive. For people like Kerry and Scott a Moble,

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Speaker 1: it was prohibitively expensive.

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Speaker 2: We contacted an attorney to try and help USU He

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Speaker 2: was willing to, but we couldn't afford.

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Speaker 1: To, Noah says. A few years ago, the federal government

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Speaker 1: started taking a closer look at the zombie debt collection industry.

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Speaker 1: That scrutiny came from the Consumer Financial Protection Bureau, the

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Speaker 1: agency created in the aftermath of the financial crisis to

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Speaker 1: make sure that Americans received fair treatment from banks, lenders,

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Speaker 1: and other financial companies.

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Speaker 3: What we were able to learn in our investigation is

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Speaker 3: that the CFPP was working on three investigations into servicing

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Speaker 3: companies that sought to help investors collect on these old

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Speaker 3: zombie mortgages.

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Speaker 1: The CFPB had also sought details from eight firms on

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Speaker 1: the scale of their work with zombie mortgages. According to

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Speaker 1: three people familiar with CFPB's operations and agency records, Bloomberg reviewed,

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Speaker 1: RPE was not among the companies under scrutiny. Then, in

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Speaker 1: February twenty twenty five, the Trump administration got it the CFPB.

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Speaker 3: What our sources have told us is that those investigations

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Speaker 3: all work on them basically halted.

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Speaker 1: A spokesperson for the CFPB told Bloomberg the work has

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Speaker 1: not been abandoned, but declined to elaborate. What kind of

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Speaker 1: preemptive steps do experts say homeowners could or should take

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Speaker 1: to find out if they might be liable for a

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Speaker 1: zombie mortgage.

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Speaker 3: Yeah. I think one of the clearest and earliest steps

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Speaker 3: that people should take is just figure out if there

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Speaker 3: are any outstanding leans on their property.

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Speaker 1: How do you do that?

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Speaker 3: Most counties have If you go to the clerk recorder's website,

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Speaker 3: they'll have these records online. In some places it's a

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Speaker 3: little harder and you actually got to go to the

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Speaker 3: physical office. But I think the more actionable and important

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Speaker 3: advice is people should not ignore these demands when they

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Speaker 3: get them. They should seek out expert advice quickly because oftentimes,

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Speaker 3: of essence, if a foreclosure sale actually goes through, consumer

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Speaker 3: advocates say, it's a lot harder for borrowers to unwind

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Speaker 3: that situation than it would be if they were negotiating

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Speaker 3: and asking for information before a foreclosure has gone through.

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Speaker 1: So look up your property records, find out if you

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Speaker 1: have any outstanding leans. If a debt collector comes knocking,

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Speaker 1: lawyer up.

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Speaker 3: Not necessarily even lawyer up, because I think a lot

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Speaker 3: of people might hear that and be like, oh, I

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Speaker 3: don't have money for a lawyer. Well, two things I

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Speaker 3: would say to that is one, their legal aid clinics

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Speaker 3: around the US certainly work on a lot of these

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Speaker 3: cases with lower income borrowers. The other thing is that

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Speaker 3: they're housing counselors out there, folks who aren't necessarily trained

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Speaker 3: as lawyers, but still have a background in this that

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Speaker 3: could help people wade through the thicket.

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Speaker 1: The a Moblaze didn't end up getting help from a lawyer.

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Speaker 1: RPE moved to foreclose, and soon after the new own

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Speaker 1: of their home rang the doorbell, they moved out. They

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Speaker 1: couldn't afford a new mortgage, so they dipped into their

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Speaker 1: retirement savings, bought an RV and moved into an RV

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Speaker 1: park about an hour away from their old home.

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Speaker 2: You know, my dad got ill. He has since passed.

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Speaker 2: He passed on June eleventh, but he was at hospice

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Speaker 2: at home. And you know, had I been in my home,

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Speaker 2: I was three minutes away from the house, I could

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Speaker 2: get back and forth real quick. I could be there

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Speaker 2: and help out more versus being an hour or more away.

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Speaker 2: You know, it just it limited and changed things a

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Speaker 2: lot for us.

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Speaker 1: This is The Big Take from Bloomberg News. I'm Sarah Holder.

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