Jody Whitlock got a mortgage for his house in Spartanburg in 1997 and paid it off in about 20 years.
He could still lose the house, if a foreclosure suit doesn’t go his way. That’s because between the day Whitlock signed for his mortgage and the day he paid it off, he took out a second mortgage to help him pay for a bachelor’s degree from the University of South Carolina-Upstate.
He got his degree, in political science, in 2009 – exactly when the Global Financial Crisis was hitting its stride. The collapse of many of the world’s economies took one of Whitlock’s two jobs.
“I was teaching drum lessons here in town and working at a local grocery store,” he said. “It was great.”
And then it wasn’t. The crash ended his music job, which led to Whitlock falling behind on some bills.
Whitlock’s original mortgage was for a then-market-value $45,000. The second mortgage was for $25,000. By 2012 he’d gotten that second mortgage down to about $17,500, but was having trouble paying on it now.
The lender began calling him, repeatedly, until Whitlock finally answered.
“There was a lady on the phone and I told her my situation,” he said. “[She asked], ‘Is there anything we can do to help you?’ I said, ‘Well, what can you do? What's available?’ And she offered a hardship discharge.”
That meant that the second mortgage would be forgiven, for Whitlock being in such bad financial straits. The lender sent him a letter in the mail, stating he was now in the clear. And the woman he’d been speaking with on the phone told him to hang onto it, in case anyone ever came looking to cash in on the formerly outstanding balance of the second mortgage.
It didn’t take long – about a year – for a debt collector to call him looking for payment on that mortgage. Whitlock said a caller told him, “We own your mortgage now. We will foreclose.”
Whitlock sent a certified mail copy of the forgiveness letter to the collector, and says he never heard from them again. He did not have an attorney at the time.
In 2017, Whitlock was doing well enough financially to pay down his first mortgage. He owned the house outright and had a clean credit report.
But in 2021, he started getting menacing mail from another collector, saying he needed to pay on the second mortgage loan, including a substantial amount of interest.
Crucially, he had lost the forgiveness letter after cleaning out some closet space in his house. He, thus, had nothing showing that he had been granted a hardship discharge.
What he did have now was a courier-delivered summons stating that his house – the one he owns outright – was to be foreclosed on.
Now Whitlock called an attorney, specifically Andrew Hart, a consumer attorney in Spartanburg. Whitlock remains in the middle of a legal effort to keep from having his house taken away from him.
So what happened?
Debt buyers buy debt in bundles. When a business writes off a balance that it no longer feels is worth collecting, it will usually sell the rights to own that debt for a fraction of the balance. A collection agency will often package several debts and sell them as a bundle for less than the face value of the total debt outstanding.
For example, a bundle of 100 debts with a total debt balance of $100,000 might be sold for $1,000. The buyer then has the right to try to collect the full amount of each single debt. So, a debt buyer spends $1,000 and has the potential to collect up to $100,000.
In South Carolina, a debt collector has the right to sue you, in most cases, for up to three years from your last payment – meaning that you are legally obligated to pay on debts within that time period. After that, the statute expires and you are not legally responsible for paying the debt anymore.
However, a debt collector can still try to get payment. And, because of how laws are written, paying anything towards a debt, even if it’s expired, will reactivate it as a live loan – and aggressive debt collectors are motivated to get you to pay something towards it in order to have you on the hook for the full amount.
This is what’s called "zombie debt" – reactivated debt that can cause big problems in your life.
When the new debt collectors called, Whitlock offered to settle the original balance of roughly $17,500. But the collector, claiming the loan had been accruing interest for a decade, wants $50,000, Whitlock said.
Why now, though?
Something else to know at this point is that, according to the Federal Reserve Bank of St. Louis, median home prices in Spartanburg rose from $108,000 at the beginning of 1997 to $253,000 by the end of 2021. Last quarter, they hit just shy of $328,000.
This is what Whitlock believes is the collector’s motivation behind coming after his forgiven second mortgage loan now – home values have shot up big in fast-growing Spartanburg.
“They can get your home for pennies on the dollar,” he said. “For nothing. And then turn around and take advantage of those high prices in the market.”
Andrew Hart thinks the same way.
“Companies that buy these loans that are delinquent by 10, 15 years, or [from] people who thought they might've been canceled or written off that long ago, are not companies that are in the mortgage business, typically,” Hart said. “So they're going to deal with things differently than a major mortgage company might. If they sit there and interest accrues and cost and fees and everything else keeps coming up on these things, someone could foreclose on that years later without someone knowing about it until they get a piece of paper saying, ‘Your home is being foreclosed on.’”
Hart said he finds the practice to be unethical, even if it is legal.
“I think they're opportunistic in who they foreclose on because they're looking for homes that have equity,” he said. “If their goal was not profit, they would foreclose on everybody. They would have foreclosed the second they bought those. I think they're sitting lying in wait until they see an opportunity to make money.”
While Whitlock fights to keep his house, he is running up legal fees – so far, he said, he’s spent about $2,000. That might not seem to be a lot, overall, but it’s still $2,000 spent on something he thought was over and done with.
And it could end up being just extra money on top of the $50,000 the debt collector wants, or the $17,500 of the forgiven balance, if a future court decision doesn’t go his way.
But a lawyer, Whitlock said, is essential in the event that a collector comes calling so insistently.
“Don't try and handle it yourself,” he said. “They have lawyers. Their lawyer wrote that foreclosure intervention for them.”
Whitlock said the practice of collecting on high-equity properties through debt bundles is simply a moneymaking scheme for a collector, and a profitable one.
“It's all profit for them,” he said. “They may have a couple of grand in attorney fees. But if they get your home, they can sell it and it's all profit because they paid literally nothing for that mortgage. They're predators. That's what they do.”
Hart recommends calling South Carolina Legal Services if you don’t feel as if you can afford a lawyer. Attorneys for that agency work based on your income.
If Legal Services cannot help, he said, calling the South Carolina Bar and asking which attorneys will consult for a low fee – Hart consults for as little as $50 for some clients – can help.
Whatever you do, Whitlock said, don’t just throw away or ignore letters that claim you owe on a debt. Have someone look at them. If it’s a real attempt to collect, the collector will eventually take you to court; and if you don’t show, a magistrate likely will take that to mean that you’re admitting that you owe the collector money.
And if that attempt to collect has a foreclosure attached to it, someone very well might take your home, legally, for pennies on the dollar.