Connecticut Beats Down Zombie Mortgages

What if you survived the foreclosure crisis back in 2008…and all of the sudden, now, a bank turned up and told you it’s time to pay back the balance related to a second lien that you thought was written off, a loan you never repaid?

This is no joke. As home values soar, lenders and collection agencies have renewed interest in decades-old home loans, and determining that it’s worthwhile to attempt foreclosures.

This month, Connecticut enacted a law to deal with loans that have risen from the dead. It would impose a ten-year statute of limitations for zombie mortgages on home properties with one to four households. The governor signed the bill on June 10, 2025.

Dusty, Musty, Long-Ago Loans

Zombie mortgage refers to a loan for which the deed holder hasn’t seen a bill or statement in years. Then, out of the blue, comes a foreclosure. Typically, this affects deed holders who got two mortgages so they could avoid a down payment. Or they got a mortgage and later got a home equity loan as a second mortgage.

After the housing bubble burst in 2008, many loans were written off. Borrowers who took out 20% loans in addition to 80% mortgages stopped receiving bills for the second loans. Some borrowers were told not to be concerned about the loans. They were relieved. They moved on with their lives.

But those same loans were reassigned — sold to other financial companies. As they stopped getting billed, borrowers might well have figured their obligations were released. Back then, of course, homes were nowhere near as valuable as they are today. Many properties weren’t worth the lenders’ time and money to pursue in court. After all, a second mortgage has a lower lien priority than a first mortgage. So unless a lot of proceeds would come out of a foreclosure, lenders for second mortgages would not get much from a legal action.

But the loans didn’t simply go away. These were high-interest loans, and the debts snowballed. It happened out of sight, out of mind. Borrowers wouldn’t even know where the loans had been directed.

A few years ago, financial companies began chasing down the old liens. Debt collectors started demanding the outstanding balances with heaps of fees and interest. (This violates federal law, unless the deed holder has received written statements laying out what’s due.) Companies threatened deed holders with foreclosure actions unless they got their repayments. Deed holders were shocked. They thought the debt collectors were scam artists. And then foreclosure agents showed up at homes.

Zombies of Connecticut

Last year, the rise of the zombie loans and their armies of debt collectors became national news. What’s happened so far could be the tip of the iceberg.

Hundreds of zombie loans could be lurking in Connecticut alone. Well, hadn’t the financial companies dropped their side of the contracts? That is the position of state Republican Senator Eric Berthel. If they hadn’t kept up with collections, then surely the companies dropped the ball — not the borrowers. People shouldn’t be forced to resolve these old loans now, after the lenders had essentially abandoned the accounts for over a decade, Berthel insisted. Berthel says this position won clear support from real estate brokers and financial professionals.

So, Berthel supported Connecticut Democratic Sen. Patricia Billie Miller, who introduced a bill meant to prevent this from happening — at least in the case of future loans. Senator Miller acted on the issue when a constituent got caught up in one of these second-loan scenarios. Miller, who is Senate chair of the Banking Committee, calls collections on reassigned, stale second mortgages a “predatory practice.”

Republican State Senator Rob Sampson disagrees. Sure, the lenders sat on the loans, but that was their prerogative. “I don’t think that should negate their right to recover money that’s been promised to them,” said Sampson.

But if you don’t even know someone has your loan, Miller countered, “how are you going to pay them?” Let’s be fair. Loan terms aren’t indefinite. There has to be an appropriate statute of limitations to stop collections companies from going after deed holders after these companies sit on their rights for years.

Nuts and Bolts of the Law

Connecticut’s new law, An Act Concerning Foreclosures and Undischarged Mortgages:

• Modifies the law regarding the foreclosure statute of limitations in the state of Connecticut. (Prior law set a 20-year statute of limitations.)

• Prevents financial companies from initiating foreclosures once 10 years has passed since their last contact with the debtor, or 10 years after the loan’s scheduled full payoff date.

• Addresses risks of lawsuits over non-obvious claims on titles.

• Sets forth a clear process for deed holders to clear their titles and the county records of old mortgage liens.

There are exceptions for cases when the borrower has received written notice of an extended loan term. There are extensions in cases where loan terms were interrupted by court orders. And second mortgages that were not reassigned are not impacted by the new law.

The biggest exception, though, is the law’s lack of retroactive effect. Nevertheless, it’s a starting point.

This Law Is Good for Deed Holders

The new law will prevent creditors from sitting on their contractual rights indefinitely. They’ll have to use them or lose them.

As Senator Miller explained the point of this law:

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.

Again, as this law isn’t retroactive, such people will continue to look to the federal laws already in effect, and call upon state attorneys general to take up their cases. Still, from a forward-looking perspective, this law proves helpful. In the future, this law will keep old, reassigned loans from coming back to haunt a title or scuttle a deal. 

From the deed holder’s perspective, Connecticut’s new policy is a good one. Companies don’t let deed holders sit and wait until it’s financially good for us to make loan repayments. They need to hold themselves to similar standards.