Karen McDonough of Quincy, Mass., was enjoying her tea one morning in the dining room when she saw something odd outside her window: a group of people gathering on her lawn. A man with a clipboard told her that her home no longer belonged to her. It didn't matter that she'd been paying her mortgage for 17 years and was current on it.
Karen McDonough of Quincy, Mass., was enjoying her tea one morning in the dining room when she saw something odd outside her window: a group of people gathering on her lawn. A man with a clipboard told her that her home no longer belonged to her. It didn't matter that she'd been paying her mortgage for 17 years and was current on it. She was a nurse with a good job and had raised her kids there. But this was a foreclosure sale, and she was going to lose her house.
This seemed impossible. McDonough had owned the house for 17 years. She's a registered nurse who worked at the prestigious Massachusetts General Hospital for decades and makes a good living. She raised two kids in the house and pays her mortgage every month. NPR spoke to other homeowners across the U.S. who are seeing mortgages they thought were dead come back to haunt them.
There was only one problem: McDonough had a good job and modest savings, but she hadn't saved up a big down payment for a house. "I gave them the master bedroom ... because they shared that room, and then I took the smaller room," she said."But it was good." "I was actually in my kitchen. I was cooking dinner, and I was talking to a representative ... and he told me I would never have to make a payment again on the second mortgage," she said."And I just didn't question any of it 'cause I was so grateful that the loan was modified."
"I'm like, 'Why are you doing this?' And he goes, 'Well, why do you think I'm doing this?'" McDonough said the man kept answering her questions with other questions."I just thought right away it was fraud."Twelve years after McDonough thought she had sorted out her two mortgages with a loan modification, she received a letter in the mail stating that she owed around $77,000.
After millions of people ended up defaulting on those mortgages, Morgan Stanley was on the brink of going under. Gordon says he expected to be laid off any day. The business is to buy these bundles of mortgages for sometimes pennies on the dollar. Some of them were worthless. The people who borrowed the money would never pay it back. But other mortgages might be worth something. And for the second mortgages, that was particularly true if you were willing to wait.Remember, though, that Karen McDonough and other homeowners say that they had been told that they didn't need to worry about those second mortgages anymore.
But now that home prices have risen, it's an entirely different story. If a house gets foreclosed on, there is plenty of money to pay offThis is what was happening to McDonough. The house she bought for $365,000 in 2005 is now worth more than $600,000.Gordon told NPR that he's reasonable, he follows the rules, and he is willing to negotiate with homeowners. He says he'll even slightly lower the amount he says homeowners owe in some cases.
And the debt collectors weren't just asking for the original $73,000 she borrowed. One document shows they were trying to collect more than double that — $184,000.McDonough says that in the midst of getting debt collection calls, she called the company she pays every month for her first mortgage. It's a mortgage servicing company named PHH. She says PHH told her it was all probably just fraud and to ignore it.
"I saw the orange thing. ... It said you have like 72 hours to get out." This was Friday, July 1, ahead of the holiday weekend. Kelly and her clients asked the debt collectors for records on these old second loans, and she says what she saw was ugly. Some of the loans have no documentation. No payment history. The recordkeeping was terrible.And she said she was struck by how cheap these mortgages can be bought and sold for. These companies are calling up homeowners demanding tens of thousands of dollars. But Kelly found that sometimes they have purchased that debt for almost nothing.
It seemed wrong to Kelly, but was it illegal? She started looking for things she could present to a judge to get these foreclosures stopped, pouring through federal and state laws and previous court cases. She says there's plenty of precedent and protections about first mortgages and foreclosures. But this whole situation with second mortgages that people thought were long dead appeared to be new.
"Regulation Z, which is part of the Truth in Lending Act," Kelly said."It requires that monthly statements be sent if there is interest assessed on a mortgage." This is just one strategy, but Kelly has been using this approach to help homeowners in dozens of cases. She just resolved a class action case where she was able to get the names of nearlyFredis Hernández was one of nearly 300 homeowners who were part of a class action case to resolve debts from zombie second mortgages.Fredis Hernández was one of nearly 300 homeowners who were part of a class action case to resolve debts from zombie second mortgages.
The eviction proceedings are on hold while her lawyers push ahead with her case. First American National now legally owns the house. But McDonough is still paying her first mortgage every month. So she's living in a kind of limbo. But instead, they found that it got passed from company to company. It eventually was sold in 2020 in a big batch of about 600 other mortgages to an LLC apparently connected to First American National, which her lawsuit alleges used unfair and deceptive practices to foreclose on her home.
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