“Zombie liens” can jeopardize private lending and property transactions.

Everything about the Brazos County, Texas, deal just south of Austin looked solid. The borrower had purchased a single-family home, secured financing through Ternus, completed renovations on time, and found a buyer within the target window. The title had been cleared when the borrower acquired the property. Closing on the sale for the new buyer should have been routine.

Instead, days before the resale, something long thought buried came back to life. A title review exposed that an old lien had resurfaced well after it was supposed to be gone. And to make matters worse, it had already triggered a foreclosure, and the property had been sold at auction.

A Title That Didn’t Stay Buried

The lien dated to 2020, stemming from a home equity loan tied to a prior owner. In 2022, the lien had been rescinded under Texas law because the lender failed to collect within the allowed timeframe. With the debt no longer legally enforceable, the lien vanished from the title. That should have been the end of it.

But as the resale neared closing, the title review exposed that the lien had resurfaced. The ensuing foreclosure and auction took place without the borrower, Ternus, or the title company ever receiving notice that the dead debt had come back to life.

The judge’s ruling, however, had not yet been recorded in county property records. That small technicality gave us one final chance to intervene before the foreclosure was final.

How Zombie Liens Resurface

Zombie liens often emerge from the same set of conditions. When markets slow, nonperforming debts are bundled and sold in bulk to investors. These asset pools may include liens that were satisfied, rescinded, or unenforceable. Without property-by-property due diligence, these dead debts reenter circulation and sometimes resurface as foreclosure claims.

Court backlogs and inconsistent recordkeeping only make the problem worse. A lien that should be long dead can be revived if an investor acts on faulty information or ignores its rescinded status. That is what happened here: A lien that had no legal force still became the basis for a foreclosure proceeding.

Acting Fast

Our borrower deserves credit for acting quickly. A relatively new but experienced investor, he owned other investment properties and had worked with us before. Once he realized a foreclosure had already occurred on the home he was preparing to sell, he immediately notified the county and the title company and called us at Ternus.

We filed a title claim that same day with Old Republic Title Company, which had issued the title policy. We explained the issue, which was definitely a title issue, noted that we had title insurance, and asked them to cover the situation.

Old Republic responded without hesitation. They retained Texas counsel and secured a temporary restraining order to stop the foreclosure from being recorded. Because the foreclosure had not yet entered the county property records, the TRO kept the flawed ruling from becoming permanent and preserved our ability to challenge the action in court.

Speed made all the difference. Once a foreclosure is recorded, legal remedies become far more limited and time-consuming.

What Was at Stake

Unfortunately, the borrower stood to lose his entire investment. He had purchased the property, completed the renovation on schedule, and lined up a buyer. All of that would have vanished if the foreclosure had been recorded. The pending sale would have been lost, leaving him with no way to repay his loan with us.

For Ternus, repayment was tied to that sale. If it failed, the borrower would have been in default, and as a foreclosed first lienholder, our only option for recovery would have been litigation.. Even with title insurance, litigation can drag on for eight or nine months, tying up capital and creating uncertainty for everyone involved. In this instance, the property was purchased at auction by a lawyer who understood the circumstances and was cooperative. Other buyers may have refused to unwind the transaction, insisting their title was clear, making recovery harder.

Why Title Quality Counts

This experience underscored something we remind borrowers of often: The quality of the title company matters. Borrowers sometimes want to use smaller agencies because they offer quick and inexpensive closings. That may work out fine when everything is straightforward. But when a complex issue arises, these agencies often lack the resources and expertise to respond.

In our case, Old Republic’s size, reputation, and capacity mattered. They had the clout and relationships to bring in legal counsel immediately and the knowledge to file a restraining order before the foreclosure entered the county records. A smaller, less-equipped firm might not have known where to start.

Industry Implications

Zombie liens are not flukes. They tend to reappear in clusters during downturns when distressed debts are sold without careful review. Although comprehensive data specific to private lending is limited, regulatory agencies have recognized zombie liens as a growing threat.

In 2023, the Consumer Financial Protection Bureau (CFPB) issued guidance warning that collectors attempting to foreclose on time-barred mortgages—essentially zombie liens—may be in violation of the Fair Debt Collection Practices Act. The agency noted that these liens disproportionately affect borrowers of color, older homeowners, and those with lower incomes. Although their focus was primarily on consumer second mortgages, the lesson for private lenders is clear: Liens thought to be dead can still come back, and when they do, the fallout can be severe.

More recently, California AB 130, targeting “zombie mortgages,” became effective July 1, 2025. The law adds Civil Code § 2924.13, requiring servicers to certify under penalty of perjury that no “unlawful practices” occurred before initiating or threatening foreclosure. Prohibited practices include failing to communicate in writing for three years, not sending required servicing or ownership transfer notices, threatening foreclosure after issuing a discharge notice, missing required statements, or acting after the statute of limitations. The servicer must also send borrowers the certification and a notice of their right to petition court. If a petition is filed, foreclosure is paused until the court decides. AB 130 closes loopholes that allowed zombie second liens to reemerge.

Where the Case Stands

At an August 8, 2025, hearing, the purchaser of the property in “foreclosure”  argued the bona fide purchaser defense. This defense claims the buyer acquired the property in good faith, paid a fair price, and had no knowledge of defects in the foreclosure. Courts generally view this defense as a strong protection of innocent buyers.

Rather than proceed to a lengthy trial, Ternus and Old Republic decided to pursue settlement. That strategy ensures a faster and more certain resolution. The property will be returned to the borrower free and clear of liens, allowing him to complete his sale as originally intended. Once the sale closes, our loan will be repaid in full.

The outcome is favorable, but not without cost. Time was lost. All parties incurred legal fees. Stress and uncertainty lingered for weeks. All of this unfolded even though everyone involved followed the rules.

Lessons Learned

Everyone involved in the deal did everything “right.” The borrower bought the property, secured financing, completed renovations, and found a buyer. Ternus funded the loan and monitored performance. Old Republic cleared title at acquisition. Yet the transaction nearly collapsed because an old lien, thought to be dead, returned.

The difference was how quickly everyone reacted. The borrower reported the issue immediately. We filed a claim without delay. Old Republic secured a restraining order quickly. That chain of action prevented the foreclosure from being recorded and gave us leverage to resolve the case through settlement.

Zombie liens will continue to lurk as long as property debt can be bundled, sold, and reintroduced into the system without full due diligence. The recording and tracking systems are imperfect. The best defense remains the same: vigilance, diligence, strong title partners, and the discipline to act without hesitation the moment a problem surfaces.