WASHINGTON — A federal judge has dismissed a lawsuit challenging California’s “Stop Zombie Second Mortgages Act,” ruling that the state’s attorney general is not the proper defendant because his office does not enforce the law.
The decision leaves the consumer protection law in place, although U.S. District Judge Dale A. Drozd did not address the plaintiffs’ constitutional arguments against the statute, according to reporting by Bloomberg Law and California’s Daily Journal.
Instead, he dismissed the case on procedural grounds after concluding that California Attorney General Rob Bonta and the California Department of Justice are not responsible for enforcing the law, Bloomberg Law reported.
Coalition Brought Suit
The lawsuit was brought by a coalition of mortgage industry, debt collection and credit union organizations seeking to block the law before it could take effect. The plaintiffs argued that the statute imposes unconstitutional requirements on subordinate mortgage foreclosures and would make it more difficult to enforce legitimate mortgage debts, according to Bloomberg Law.
The California law was enacted in 2025 to address so-called “zombie” second mortgages, requiring creditors seeking to use the state’s non-judicial foreclosure process on certain second mortgages to provide sworn declarations regarding the loan’s servicing history and acknowledge any lapses in servicing or communication with borrowers, according to Bloomberg News.
What Ruling Does Do
Judge Drozd’s ruling did not determine whether those requirements are constitutional. Instead, the court concluded the attorney general could not be sued because the office lacks direct enforcement authority over the statute, leaving open the possibility that future challenges could be brought against officials responsible for administering the law, according to Bloomberg Law.
About Zombie Second Mortgages
What is a zombie second mortgage?
According to the Consumer Financial Protection Bureau, a zombie second mortgage is an old home loan—typically a second mortgage or home equity loan—that borrowers often believed had been forgiven, discharged or abandoned after years of silence from the lender. In many cases, the loans were charged off, sold to debt buyers and then resurfaced years later, with collectors demanding repayment of the original balance plus accumulated interest and fees, sometimes while threatening foreclosure.
Many of the loans originated before the 2008 financial crisis as part of so-called “80/20” financing arrangements in which homeowners used a second mortgage to cover part of a home’s purchase price.
More Than 600,000 Such Mortgages
Bloomberg News reported earlier this year that more than 600,000 pre-2008 second mortgages remain outstanding nationwide, prompting lawmakers in several states to pursue new consumer protections. California is among a small number of states that have enacted legislation specifically addressing zombie second mortgages, while similar proposals have been considered in states including Maryland and Virginia.
Industry groups have argued that such laws could complicate the secondary mortgage market and make it more difficult to enforce valid debts. Consumer advocates, however, contend the measures are necessary to protect homeowners from foreclosure actions based on long-dormant loans that borrowers often had little reason to believe were still collectible, according to Bloomberg News.
