A FAMILY from California was unexpectedly kicked out of their home and given only five minutes to leave.
A refinancing issue from 13 years ago had returned to haunt the family in the form of a zombie mortgage.
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The Arzate family from Orcutt, California – 15 miles southwest of Santa Maria – was evicted from their home on June 21 last year.
Santa Barbara County Sheriff’s Deputies knocked on Jose Arzate’s door that morning to evict him and his family.
However, they not renters – they had owned the home for over two decades.
“I said, ‘I have the deed, you want to see it?’” Arzate said, according to local ABC affiliate KEYT-TV.
“No, you don’t have to. You’re not the owner anymore,” responded the officer.
The officers gave Arzate, his three kids – one with autism – and a grandchild, only five minutes to gather their belongings and leave the premises. Arzate’s wife was not home at the time.
“My grandson went in there, he was crying and everything. I told him it’s going to be okay,” said Arzate, who pleaded with the deputies.
He explained to them that he was also an officer, as he worked as a probation officer for Santa Barbara County.
“They treated me like a criminal, basically, I was treated like a criminal,” said Arzate.
Arzate followed the officers’ directives and he and his family left the home and all of their belongings.
“I thought it was just a dream I was going through, like, is this happening? What’s going on?” said Arzate.
ZOMBIE MORTGAGE
The family’s eviction was due to an issue related to the housing crisis from 15 years ago.
At the time, many owed more for their house than it was worth, resulting in high foreclosure rates.
The government offered loan modifications so homeowners could refinance their first and second mortgages into one manageable loan.
Zombie Mortgages
A zombie second mortgage, or zombie loan, is a mortgage debt that was believed to have been forgiven or satisfied long ago but still exists.
Years later, collection actions bring such loans back from the dead.
These loans can haunt elderly borrowers, individuals with lower incomes, and borrowers residing in communities of color.
However, as in the case of the Arzate family, one of their old loans caused them problems in the present.
The family had bundled their two mortgage loans in 2010 and believed they were paid off, but the second mortgage loan remained unresolved without their knowledge.
Years later, it came “back from the dead” to trouble the Arzate family, dubbed a zombie mortgage or zombie loan.
It turned out that Mike Phillips, a Santa Maria real estate agent, had purchased the home’s second trust deed, making him the new homeowner.
STICKY SITUATION
Phillips made a mistake according to the Arzate family’s attorney Daniel Martorella.
“He bought a second trust deed, which was not identified in any of the documents, it doesn’t have to be. But there’s warnings on the documents from the foreclosure company that say be careful what you buy because it may not be what you think it is, and I think that’s what happened here,” said Martorella.
Phillips admitted he knew he was purchasing just the second trust deed and probably should not have done so knowing the first deed was still out there.
“So [the lender] waited until the equity built up and then they were somehow going to snatch the equity and [Phillips] thought he could swoop in there and take the equity and leave these guys high and dry. It’s a horrible case. I’m gonna stop it,” said Martorella.
“It was supposed to be sold at an auction. There was one person, one bidder, one bid a penny over and there was one acceptance. The whole process smells,” he added.
Phillips purchased the house at auction for only $145,000 and tried to sell it for nearly $600,000 a few months later, but the buyer backed out of the sale to remain an innocent third party in the situation.
The real estate agent banked off of the misfortune of the Arzates, who are still paying the first mortgage on the home.
The family cannot afford to rent another place, so they’ve separated, with each now residing with friends and relatives.
“I want the community to know it happened to me and it can happen to anybody,” said Arzate.
The family still holds the first trust deed on the home and the case is before Judge James Rigali in Santa Maria Superior Court, likely headed to trial.
The U.S. Sun contacted the Arzate’s attorney, who mentioned they are pursuing mediation to resolve the case.
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