ZombieWikimedia Commons

Want living proof zombies exist?

Look no further than Ron and Shelia Bower, the Topeka, Kan. couple featured in Michelle Conlin's Reuters article about what happens when mortgages come back from the dead to wreak havoc on homeowners' credit. 

Jumping at the chance to refinance their suburban ranch in July 2009, the Bowers were thrilled at the prospect of saving nearly $200 each month. (See how to make refinancing work for you.)

But when an old Wells Fargo loan came knocking, they wound up in the poorhouse—and the courthouse. 

Long-story short, the Bowers were approved for the new loan, used the money to pay off their old one, then received a confirmation from the bank saying everything had gone through.

A month later, Well Fargo reverted the mortgage back to the original loan's 7 percent rate, and the Bowers were slapped with $3,000 in late fees. 

"To Wells Fargo, it was as if the refinance had never occurred," writes Conlin. "Yet Wells Fargo then reported two mortgages to the credit bureaus. That lowered the couple's credit score to the point where they couldn't obtain their son's new student loans."

Things got really nasty from there. The bank insisted the Bowers had two mortgages, which the Bowers flatly denied. They responded by filing a lawsuit and only making monthly payments for the new, refinanced loan's amount. 

When Nov. 2010 rolled around, the Bowers were facing foreclosure. 

Whether Wells Fargo is in the wrong will be determined in court, but there's a lot we can learn from the Bowers on what not to do when your old mortgage turns into a zombie.

Said John Ulzheimer, president of consumer education at SmartCredit.com: "It seems to be a slam-dunk, based on what's written in the article, but there's a lot this story might not be telling us." Based on what we do know, here's his advice: 

Never miss a closing. Wells Fargo alleges the Bowers missed their closing, which is a very bad move. "There should be something in that closing paperwork that talks about how they're obligating themselves, and whether a new lender would pay off the old lender," said Ulzheimer. Not only that, it makes them look irresponsible in a court of law. "Being ignorant of your obligation is no excuse," said Ulzheimer. "That puts a gaping hole in the chonology in their perspective and they need to know that all this stuff has happened." 

File a legitimate dispute with all three credit bureaus. Nowhere in the story is there mention of the couple doing this, which leads Ulzheimer to believe there was more to the Bowers' score than meets the eye. The Bowers may have had lousy credit to begin with and wrongly perceived the foreclosure as the black mark that took their ship down. 

But filing a dispute—regardless of your score—is important in times like this, said Ulzheimer. FICO, the credit score most lenders use to determine your credit risks, tends to defer to the credit furnisher (in this case, the mortgage lender). so if something's amiss, it's on you to speak up and get an all-important notation put in your file. 

"While the account is in dispute, it's not hurting your score as long as that notation is on the account that's  being investigated," Ulzheimer said. "That doesn't mean it's not on the credit report anywhere, visually it just means FICO doesn't consider it."

Keep making your mortgage payments. You might be livid and totally strapped, but do what you can to make your payments on time. "(What the Bowers are doing) is not good because now Wells Fargo can take the position that their mortgage is in default and they would have had to close on it, anyway. Paying the mortgage would put them in a better position from a credit damage standpoint. It's always a better argument to say, we always make our payments on time." 

Trust us, if these homeowners could bounce back from foreclosure, hopefully the Bowers can too. 

Get the full story of the Bowers' zombie mortgage saga on Reuters

Now see how to strategically default on your home and live scott-free for years >