COVID Forbearance Exit Issues

[CinemaMike]

Hello all. Hoping somebody can help me understand what is going on here. I had a Chapter 7 bankruptcy that was discharged in January of 2018. I did not reaffirm the mortgage on my house at the advice of council. Since the discharge I have always paid on time and then COVID hit. My employer could not keep me working full-time so I was moved to temporary duty for several months last year, which resulted in a drop in my income. I talked to my mortgage lender (US Bank Home Mortgage) and they offered forbearance through the CARES act. I was never late on any payments but the concern that I might be led me to accept this forbearance. I have maintained that forbearance since then because of the uncertainty of my job situation. My forbearance ends at the end of this month so I called on Oct 1st in order to discuss my repayment options. The rep on the phone gave me two options. 1) move the missed payments to the end of loan and they come due when the loan is paid off, sold, or refinanced. 2) a loan modification in which my interest rate is slightly reduced and time is added to the loan, resulting in a lower payment. I told her I needed to think about it and she said no problem, that I had plenty of time to decide. I called back in last week to let them know what I decided and the gentleman on the phone said my account was locked for some reason and he could not access my options. He said to call back in a couple of days and it would be fixed-assuring me their was no problem. I called back a couple of days later and was told the situation had not changed but not to worry. In the meantime I received some mail from US Bank stating they were unable to offer me any sort of repayment options. I called back in today and was told that the account was still locked and that it would be 7-10 days before they could even look at the account to see what options existed for me. He said that because of my Chapter 7, options were going to be limited or not available at all. I said that I was confused since the first person I spoke with offered me 2 clear options. He said that he could not help me because the account was locked and I would need to wait those 7-10 days. I repeatedly asked if those original options were still available and he refused to commit to anything and said he could not discuss the matter further.

So I have a mortgage payment due Nov 1st, with no idea of how much that payment is. From the sound of it, I may have no repayment options whatsoever. I am worried, confused, and frustrated. I asked and was assured all during the time I was in forbearance, that when this ended I would not have any lump sum payments and had nothing to worry about. I was told the bankruptcy was irrelevant to forbearance. I was offered repayment options and now have paperwork saying there are no options and an account that will be locked until 10 days before the payment is due. At which time there will still be a process to go through, making this all very last minute.

Can anybody tell me how and why my Chapter 7 would impact my exit from forbearance? I was told it would not and now I am pacing the floor because my Mortgage company cannot even look at my account or answer even basic questions. I feel like I am being given the runaround. Do I have any options here at all?? Thanks in advance for any help you are able to offer.

[justbroke]

Welcome to BKForum.

Unfortunately, only your lender/servicer can speak to their procedures. I am pretty sure the bankruptcy complicated things and you received different information based on what the representative knew at the time they spoke to you. They probably, at first, gave you general information about the forbearance program, and later they looked more deeply at your account and found a bankruptcy/discharge flag.

Your bankruptcy absolutely affects this and here's why. When you did not reaffirm the mortgage, you actually discharged the debt personally. The lender can never pursue you personally for that debt (known as in personam). They can only foreclose (known as in rem). Since you maintained the payments, they had no legal reason to foreclose. In the midst and height of the epidemic, the forbearance was probably granted without even looking at the account (which is a good thing). Now that you're coming out from forbearance, the discharged debt is likely wreaking havoc on their ability to deal with this.

You will need to allow them to attempt to fashion a fix for this. Probably, when they put the payments at the end or re-amortized the account, they actually create a new promissory note. They can't do that in this case since the debt is technically discharged and they can't make you sign up again for that debt (it would create an invalid back-door reaffirmation). They are likely sending or sent it to their attorney to look at what they can do without upsetting the situation.

You'll just need to wait and see what they do. It is really up to the creditor at this point.

[CinemaMike]

Thank you for the response. I know it is difficult to answer but how worried should I be? I am not wanting to lose my home as there is no place for me to go and I have a home improvement loan that was reaffirmed and is tied to the mortgage. A foreclosure would accelerate that loan. There is simply no way I can pay back the missed payments in a lump sum. I am somewhat blindsided as none of this was brought to my attention at any point in the forbearance process. I assume they just overlooked it as you said, but that puts me in a terrible position. Is this something that is likely to be resolved or should I contact my old attorney?

[justbroke]

Would you want to refinance using an FHA backed product?

I don't think a bankruptcy attorney, or any, can help with this. You are out of forbearance and your lender is trying to figure out what to do. The bankruptcy surely complicated matters since you are not responsible to pay. I would work with them but know that you don't want any late payments if you're thinking of a refinance. I don't even know the impact of the forbearance on any potential refinancing.

The best thing, I think, is for your current lender to figure this out and get you back current and paying as normal.

[CinemaMike]

Okay. I went ahead and contacted my attorney and they offered to fax over paperwork to the lender giving them permission to talk with me. They said they don't understand why the lender is handling it in this fashion as it is in the lender's best interest to get me paying again. I am just very nervous that my home is in jeopardy and I don't feel like I did anything wrong here. Hopefully the lender will reach some sort of resolution with me. The attorney said if all else fails I could do a chapter 13 but that feels ridiculous. I am not behind on any bills and have money to pay my mortgage. I appreciate the help and will be sure to follow-up with this board, as I am sure I'm not the only person this has affected.

[justbroke]

The letter will make sure the lender understands that it's okay to talk to you, but I thought your bankruptcy was already discharged 3 years ago, so they shouldn't have an issue speaking with you. A Chapter 13 can cure any issues, but, as you say, that's just something that I would avoid if at all possible.

Maybe the bank is just stuck and trying to figure out what to do. I hope that they work with you.

[CinemaMike]

Yes, the bankruptcy was indeed 3 years ago. I am very confused by the bank's behavior and so was my attorney's office. He essentially said the same thing as you, that the bank may just be uncertain of how to proceed and that at the end of the day they should work with me, because it is in their interest to do so. It is my understanding that under the CARES act they are legally obligated to work with the borrower anyway. Again, I will followup with how this progresses, but this has certainly soured me on US Bank. This issue should have been made clear to me up front. Instead, we may not have a resolution before the payment is due. I am going to keep a hopeful face on things and trust they will not try and take my house.

[vet2019]

CARES Act is pretty specific on this and it sounds like your bank is not following the law. I am having quite the opposite experience than you are with a different bank and my Ch7 discharged about 3 years ago too. What type of loan do you have? If you have any government backed loan (i.e. VA, FHA, etc), the banks are limited on what they can make you do...like they cannot force you to pay lump sum. I am in the process of exiting too. My forbearance ended back in November but my first payment isn't due until Feb 1 due to the time it took for them to process paperwork and everything.

I would not refinance though. A modification does not make you liable for the debt like a refinance would. With modification, the debt is still considered discharged in bankruptcy and you can walk away from the house one day (if life circumstances forced that option).