Lenders are selling second mortgages and home-equity lines in default to collection agencies that have the right to collect this money potentially for decades.
It's a big business, and investors are coming out of the woodwork, says Sylvia Alayon, a vice president for Consumer Mortgage Audit Center, which analyzes mortgage documents for lenders, advocacy groups, and attorneys.
Real estate professionals will be doing their short-sale clients a big favor if they urge them to get professional advice before they sign agreements, Alayon says.
A new government short-sale program, which takes effect Monday, aims to prevent banks from reselling this debt. Sellers covered under the program will receive notice that secondary lien holders have received part of the proceeds of the sale in exchange for release and full satisfaction of their liens.