By Susan Yen | Mortgage & Capital Strategist
What Is a “Zombie Second Mortgage?
A zombie second mortgage is an old loan that never got cleared.
Homeowners often took these out as HELOCs or second loans.
After the 2008 crash, lenders stopped collecting—but didn’t cancel the debt.
Over time, the loan changes hands, and collection efforts begin.They may even threaten foreclosure, catching homeowners off guard. That’s why they’re called zombie loans—they come back without warning.
New California Law (Effective July 2025): Here’s What Changed
To protect homeowners from surprise foreclosures tied to old second mortgages, California passed a new law in 2025. Here’s what it includes:
Borrower Dispute Protection
First, if you formally dispute the foreclosure in writing, the process must pause immediately. This gives you time to respond before any action can move forward.
Written Notice Required
Next, lenders must send you official written notice before they can begin foreclosure on a second mortgage. This eliminates surprise or sudden action.
3-Year Inactivity Rule
If no one has tried to collect on the loan in the past three years, the lender is no longer allowed to foreclose.
Legal Declaration Required
Finally, if the lender hasn’t tried to collect in over 3 years, they lose the right to foreclose.
This rule protects homeowners from stale claims and unexpected threats.
Why This Matters for Homeowners
Many Californians are just discovering that second mortgages they thought were gone are being used as grounds for new foreclosure actions.
This new law gives you:
Time to respond
- Legal protection
- Clarity to fight back before losing your home
What to Do if You Suspect a Zombie Loan
- Don’t ignore any notices, even from unknown companies
- Check your title report for active second liens
- Contact a mortgage strategist (like Team Yen) or real estate attorney
- Don’t wait until you receive a Notice of Default — act early
For Private Lenders & Note Holders
If you’re a private lender, note buyer, or servicing a second-position lien:
Under this new law, the process and timing for foreclosure have changed.
You must now:
- Provide proper legal notice
- Certify that the debt is valid and enforceable
- Pause any action if the borrower disputes your claim
Whenever possible, start with a conversation with a clean payoff can resolve things faster. This will be without legal headaches.
Final Thoughts from Susan Yen
This new law creates balance: it shields borrowers from harm and requires lenders to act responsibly.
In this changing landscape, knowledge is your strongest asset. No matter if you’re lending or borrowing, I’ll help you move forward with confidence.
I’m Susan Yen — a Mortgage & Capital Strategist, educator, and founder of Team Yen. I’ve spent over 25 years in lending helping people understand money, use credit as a tool, and build the kind of wealth that creates real options.
I write to break things down, share tools that actually work, and bring clarity to a system that wasn’t designed to be transparent. My goal is to help you rise smarter, stronger, and more in control of your financial path — with heart and strategy.
If this resonated, let’s connect.
www.teamyen.com | info@teamyen.com | 626-389-2899
