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Zombie Mortgage Debt Lawyer California
Newport Beach
1-877-WIN-4-YOU 949-678-2218
California New Laws AB 130, 131, SB 681, Zombie Mortgages, Help Mortgage Attorneys
California Attorney Rich Rydstrom 1-877-WIN-4-YOU
https://ZombieDebtTraps.com https://RydstromLaw.com https://MortgageCoalition.org
www.Linktr.ee/ZombieLaw
___ California Legislature AB 130; 131, SB 681 CC 2924.13
Tags: Foreclosure, Second Mortgages, Unfair Practices, Abandonment, 3 Years No Communication (Period of Silence), Zombie Debt Trap
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**Testimony by Attorney Richard Rydstrom to the California State Assembly on Proposed Legislation SB 681 to Protect Homeowners from Zombie Debt Traps and Bank Misconduct**
**June 25, 2026, Sacramento, CA**
As a 34-year veteran California attorney, I testify before the California State Assembly to advocate for the passage of **SB 681**, a critical law to protect homeowners from Zombie Debt Traps by banks, lenders, and debt buyer collectors that began during the Great Recession. As the attorney for Gen West in *West v. JPMorgan Chase Bank, N.A.*, 214 Cal. App. 4th 780 (2013), Chairman of the Coalition for Mortgage Industry Solutions (CMIS) leading the debate for default servicing solutions including HAMP 2MP, and a witness before the 110th U.S. Congress in 2007 warning of the impending Great Recession, I have dedicated my career to crafting fair solutions for homeowners and the industry. In my 2007 congressional testimony, I proposed measures to avert financial collapse while balancing consumer and industry interests. Never did we intend for lenders to circumvent the Home Affordable Modification Program (HAMP) and its second lien modification program (2MP), creating “Zombie Debt Traps” through straw debt collectors 10 years after homeowners faithfully performed modifications, whether HAMP or proprietary. This is a gross and unlawful misuse of the agreed Rules and Mandates, including HAMP 2MP (Supplemental Directive 09-05 Revised, HAMP SD 09-01), the National Mortgage Settlement (NMS), and the California Commitment NMS, designed to save our nation from financial devastation. I urge the Assembly to declare these practices unlawful through SB 681, holding wrongdoers accountable and addressing the unfairness of misconduct evading challenge due to delays engineered by the wrongdoers, as prohibited by the California Supreme Court in *Carruth v. Fritch*, 36 Cal. 2d 426 (1955).
### The Anatomy of The Zombie Debt Trap
The following sections detail the fraudulent mechanisms used to bypass homeowner protections and public policy, creating Zombie Debt Traps that exploit California homeowners.
#### 1. Circumvention of HAMP 2MP (NMS National Mortgage Settlement)
- **Application Process**: Homeowners applied for HAMP 2MP, often using official Making Home Affordable (HAMP) Request for Mortgage Assistance (RMA) forms provided by banks or servicers.
- **Steering Away from HAMP 2MP**: To avoid HAMP 2MP obligations on underwater-equity homes, banks and servicers steered homeowners to non-HAMP, in-house, or proprietary modifications. These solutions were often undisclosed, and required denial notices explaining HAMP 2MP rejections, as mandated by Supplemental Directive 09-05 Revised, were rarely provided.
- **Fraudulent Practices**: In a common plan and scheme to defraud homeowners and public policy, banks charged off second debts, sold them with servicing rights, or filed insurance claims. U.S. Treasury TARP HAMP Monitors reported banks received compensation for modifications and insurance claims, raising concerns about double-dipping on second mortgage debts.
#### 2. Period of Silence
- **Strategic Delay**: Banks, servicers, and debt buyers imposed a deliberate period of silence, withholding notices of debt transfers, sales, insurance claims, billing statements, or interest accruals. This silence, typically spanning 10–12 years, lulled homeowners into a false sense of security, believing their second mortgage debts were resolved by the first (HAMP) modification or written cancellation promises, violating *Carruth v. Fritch*, 36 Cal. 2d 426, 433 (1955), which held that a party may not “lull the other into a false sense of security” to induce inaction or lessen its remedies.
- **Equity Exploitation**: This delay allowed wrongdoers to wait until underwater homes became overwater-equity properties, making foreclosure profitable for collecting inflated second debts. They use foreclosure and its threat as a coercive business and collection tool.
#### 3. Non-SPA Straw Debt Collector
- **Non-SPA Transferees**: Debts were transferred to non-SPA (Servicer Participation Agreement) debt buyers, who falsely claim exemption from HAMP 2MP, NMS, and related mandates. This argument is fraudulent, as these obligations, per Supplemental Directive 09-05 Revised and NMS, bind all successors in interest.
- **Foreclosure Threats**: These debt collectors waited until properties gained equity, then demanded payment for second debts with unlawfully inflated interest, often double the original principal. They frequently lack documentation or knowledge of HAMP 2MP, debt validation, or cancellations (e.g., 150,000 second mortgage cancellation letters reportedly sent by major banks). Homeowners faced ultimatums: pay or lose their homes.
#### 4. The Risk Bargain of Second Mortgage Debt – The Homeowners Already Bargained the Price in Higher Interest
- **80/20 Mortgage Structure**: Banks and secondary markets designed second mortgages as high-risk products, charging higher and variable interest rates to offset potential losses. Homeowners bargained for the price of the risk through these higher interest rates in consideration for the risks of loss borne by banks and lenders.
- **Lender Responsibility**: The Great Recession and credit freeze caused lower home valuations, rendering second liens uncollectible. This risk belongs to lenders, who bargained for higher and variable interest rates to mitigate potential losses. I urge the Assembly to declare that homeowners are not liable for losses lenders bargained for through these rates.
- **Public Policy Mandates**: HAMP 2MP (Supplemental Directive 09-05 Revised, HAMP SD 09-01), NMS, and the California Homeowner Bill of Rights (HOBR) embody mandatory California public policy. I suggest the Assembly declare Zombie Debt Traps per se unlawful, unfair, and fraudulent, allowing homeowners to sue for violations, including non-compliance with HAMP 2MP, NMS, HOBR, CFPB proclamations, and ongoing misconduct from the Great Recession, such as failure to modify in proportion to the granted (HAMP) modification, or cancel and extinguish in part or total, release the lien, and relinquish all rights against the borrower, failure to validate debts or provide required notices or billing statements (pursuant to HAMP 2MP, NMS, Regulations X, Z, F).
#### 5. Questions of Fact for Jury and Damages
- **Jury Role**: Juries should determine all questions of fact, including the amount of damages.
- **Damages**: Damages include compensatory damages, actual and statutory damages, loss of appreciation and equity due to the wrongful maintenance of the second mortgage lien, attorney fees and costs, emotional distress and its related physical and medical injuries, equitable and declaratory relief, including cancellation of the second mortgage debt, release of said lien, and relinquishment of all rights against the borrowers to the extent of forgiven or unlawful debt. Damages and injuries also include loss of market value refinance or sale benefits equivalent to the second lien amount over the 10–12-year period of the Zombie Debt Trap, actual and statutory damages for unfair debt collection practices and threats of foreclosure, emotional distress, and physical manifestations of extreme stress resulting in personal injuries.
- **Equitable Tolling**: Homeowners’ rights to sue should be tolled from the Great Recession onward, covering ongoing misconduct, including failure to comply with HAMP 2MP, NMS, or HOBR, improper foreclosure processes, or maintenance of wrongful second liens.
- **Legal Support**: As the attorney in *West v. JPMorgan Chase Bank, N.A.*, 214 Cal. App. 4th 780, 799 (2013), we secured a ruling that “a plaintiff may state a cause of action for wrongful foreclosure based on allegations that a lender foreclosed on a loan that should have been modified under HAMP.” The court further held that “a borrower who has suffered from a material HAMP violation may assert claims for damages or equitable relief,” and such violations “may also support related causes of action, such as breach of contract, promissory estoppel, fraud, or violation of [Business and Professions Code section 17200]” (unfair trade practices). This ruling confirms that HAMP 2MP and NMS obligations are imputed to mortgage contracts, supporting homeowners’ claims against banks, servicers, or debt buyers. I suggest the Assembly declare Zombie Debt Traps should be declared against the California public interest and public policy, with juries assessing liability for those creating or participating in these schemes.
### Legislative Declarations and Proposals for SB 681
To address the injustices caused by Zombie Debt Traps, I propose the following declarations and provisions be included in SB 681, continuing and clarifying existing law and public policy from HAMP 2MP (Supplemental Directive 09-05 Revised, HAMP SD 09-01), NMS, and the California Commitment NMS:
1. **Declare Zombie Debt Traps Unlawful**: The Assembly should declare Zombie Debt Traps per se unlawful, unfair, and fraudulent, as they violate California public policy. This continues HAMP 2MP mandates (Supplemental Directive 09-05 Revised) requiring servicers to modify or extinguish second liens in proportion to HAMP first modifications and NMS obligations for transparent, fair servicing practices. It also aligns with the California Commitment NMS, reserving jurisdiction for the Attorney General to seek redress and funds for public purposes, such as consumer protection and housing stability programs.
2. **Homeowners Not Liable for Lenders’ Risk**: The Assembly should declare that homeowners are not liable for losses lenders bargained for through higher and variable interest rates, as homeowners bargained for the price of risk in 80/20 mortgage structures. This clarifies HAMP 2MP’s intent to allocate second lien risks to lenders, per Supplemental Directive 09-05 Revised, which mandates lien release or debt cancellation when appropriate, preventing lenders from reviving zombie debts.
3. **Mandatory Compliance with HAMP 2MP, NMS, and HOBR**: The Assembly should declare that all successors in interest, including non-SPA debt buyers, are bound by HAMP 2MP, NMS, and HOBR obligations, as outlined in Supplemental Directive 09-05 Revised, HAMP SD 09-01, and NMS servicing standards. This includes requirements to modify second liens proportionately, cancel or extinguish debts, release liens, and relinquish borrower rights, with violations actionable under causes like fraud or unfair trade practices, per *West v. JPMorgan Chase*.
4. **Equitable Tolling and Homeowner Remedies**: The Assembly should declare that homeowners’ rights to sue for violations of HAMP 2MP, NMS, HOBR, or related mandates are equitably tolled from the Great Recession, covering ongoing misconduct such as failure to provide notices or modify second liens, per HAMP SD 09-01’s notice requirements. This ensures homeowners can seek damages and equitable relief, consistent with the California Commitment NMS’s focus on consumer redress.
5. **Jury Determination of Liability and Damages**: The Assembly should declare that juries may determine liability and damages for Zombie Debt Traps, including compensatory, statutory, and actual damages, loss of equity and appreciation, refinance or sale benefits, attorney fees, emotional distress, physical injuries, and equitable relief like debt cancellation and lien release. This upholds NMS and HAMP 2MP goals of fair remedies and aligns with the California Commitment NMS’s public purpose of consumer protection.
6. **Attorney General Jurisdiction**: The Assembly should declare that the California Attorney General retains jurisdiction to seek redress and funds for public purposes, as provided in the California Commitment NMS, to address systemic Zombie Debt Trap violations, fund homeowner relief programs, and enforce compliance with HAMP 2MP and NMS mandates.
### Why This Legislation Is Urgent
The urgency of SB 681 is undeniable. A barrage of debt collectors is aggressively demanding payoffs for zombie second debts, threatening foreclosure if homeowners refuse. Foreclosure activity is surging, with ATTOM Data Solutions reporting a 60.5% increase in new foreclosure filings in Q1 2025 compared to Q4 2024, and a 44% rise year-over-year, including portfolios held by major banks like JPMorgan Chase (https://www.attomdata.com/news/market-trends/foreclosures/attom-q1-2025-u-s-foreclosure-market-report/). While specific second mortgage foreclosure data is limited, industry sources like MortgageOrb.com and RealTrack note a troubling rise in foreclosure starts tied to secondary liens, exacerbating the threat to homeowners targeted by debt collectors exploiting zombie debts. These collectors prey on regained home equity, reviving debts that should have been resolved under HAMP 2MP or NMS.
As Chairman of CMIS, I led efforts to develop HAMP 2MP and other default servicing solutions, as documented by MortgageCoalition.org, to stabilize communities during the Great Recession. My 2007 testimony to Congress warned of the crisis and proposed fair solutions, never anticipating that lenders would misuse these mandates to create straw debt collectors 10 years later, undermining homeowners who complied with modifications. Allowing banks and debt buyers to profit from Zombie Debt Traps—exploiting delays they engineered—is grossly unfair. Homeowners, lulled into inaction by deceptive silence, should not lose their rights, as affirmed by *Carruth v. Fritch*, 36 Cal. 2d 426. SB 681 is essential to safeguard homeowners’ equity, retirement, and homes, ensuring compliance with public policy and holding wrongdoers accountable for damages, including loss of appreciation and equity due to the wrongful maintenance of the second mortgage lien, refinance or sale benefits, unfair collection damages, attorney fees and costs, emotional distress, physical injuries, and equitable relief such as debt cancellation and lien release.
### Call to Action
I respectfully urge the California State Assembly to pass **SB 681**, declaring Zombie Debt Traps should be declared against the California public interest and public policy, and reinforcing California’s commitment to homeowner protections, as championed by former Attorney General Kamala Harris in the California NMS. As a witness advocating for this bill, I emphasize that its passage is critical to eradicate Zombie Debt Traps, continue and clarify HAMP 2MP and NMS mandates, and restore justice for California homeowners.
**Richard Rydstrom, Esq.**
California Attorney, 34 Years
Advocate for Homeowner Rights
1-877-WIN-4-YOU
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