Refi / Modification after BK

[lclounge]

I looked through this section of the forum and didn't find the answer to my question... but I apologize if this subject has been beaten to death already!

We bought our house from a builder, through their in-house lender, in Oct. 2006. They were trying to close as many sales as possible before the end of the fiscal year and we took full advantage of their desperation! Among many other things, they paid several points to bring our rate down to 5.13% (which was very good back then!) fixed for 5 years. It will adjust in Oct. of 2011 to current rates, which would be nice right now, but who knows what interest rates will do in the next 2 years?!?

We looked into refinancing at the end of 2008, knowing we were going to stop paying on our credit cards and enter into a DMP, which would hit our credit pretty hard. We've since decided we can't even come close to making the DMP payments and we're planning to file Ch. 7. Our first meeting with a lawyer is next week.

Unfortunately, even before we stopped paying our CC's we were told by several lenders that they couldn't qualify us due to our debt-to-income ratio, despite our perfect credit. Our current mortgage company (the builder's in-house lender sold our loan to Wells Fargo 2 days after we closed, of course) contacted us in January to modify our mortgage, but by that time our credit reports had already taken some late payment hits. I was honest with the woman and told her we were looking into filing BK, but we'd be keeping the house. She said we'd probably be better off refinancing AFTER the BK, and that she couldn't do anything for us right now because our scores had dropped into the 500's (down from the high 700's). For 30 day late reports?!? I occasionally paid credit cards late in college, sometimes 90 days, and my scores never dropped below 680. Anyway...

I am relieved at the prospect of filing BK, but have this lingering concern over our rate adjusting in 2 1/2 years to something we can't afford. FHA loans cap out at $320k in our county (so I've been told). We owe $304k on our mortgage and $37k on a HELOC, which I assume we'll have to reaffirm if we want to keep the house.

Has anyone had experience with loan modifications or refinances within a couple of years after Ch 7? Or is there a possibility we can modify our loan when we reaffirm it during BK? FHA experts - is it true that they cap the loan amounts?

Any feedback - good or bad - would be muchly appreciated!

[ladyjenn]

How did you make out with this? We are in the same exact situation.

[lclounge]

We've been in the process of trying to modify our mortgage since Oct of last year. Luckily, there's a lot of options out there for mortgage modification right now... unfortunately, my husband has been unemployed since our BK was discharged last August. If he were working I'm sure we would already have a modification locked in place... but since he's unemployed and I'm self employed it's been a loooooong process. But filing BK was the best thing we've ever done! Good luck!

[calgirl67]

You must be nuts to even consider REFINANCING after a BK. Modify yes, but if you refinance it is a whole new contract and loan and you ARE on the hook for the mortgage if you cannot pay it down the road. Remember filing for Ch 7 gives you complete discharge from your personal responsibility on your current mortgage.

PLEASE do NOT re-affirm your mortgage in your BK case regardless of what your attorney (if he's a crappy one) says or the bank says. PLEASE do NOT refinance your mortgage after your BK discharges.

The bank is telling you this because it is in THEIR best interests if you do this, you will be responsible for the mortgage all over again and they can foreclose AND come after you for the deficiency, sue you win a judgement and garnish your wages. You have to wait 8 yrs to file Ch 7 again.

And, NEVER sign anything from the bank without consulting a real estate (Not BK) attorney first. Never...

[lclounge]

I don't actually agree with you calgirl67. Everyone's situation is different... but in our case, our #1 priority is to keep our house. I wish we HAD reaffirmed our mortgage because each payment would be helping us rebuild our credit and we would have more options in this modification, or to refi at these super-low interest rates. This market is not like it used to be... banks aren't getting anywhere with coming after people for debts on their houses... they're just taking the houses when they ABSOLUTELY have to. If they have to get out of their houses, people are short-selling and not being held responsible for the remaining balances. The banks don't want the houses... they want to find a way to keep people IN their houses, making their payments.

Getting into debt was a necessary evil for us so that I could start my business successfully. It was totally worth it, but we've also learned a lot and will never go down that road again. Bankruptcy was the scariest thing I've ever had to go through... and now I just want to return to normal. I want to rebuild our credit so we can buy a bigger house one day, buy a car like a normal person and be financially stable like we should have already been by now.

Having access to credit is a necessary evil for the type of life we choose to live. Without getting new loans, we'd never be able to rebuild our credit, but that last thing I want is a new credit card. Things like mortgages, cars and school loans are the safest ways to rebuild credit without the temptation of a credit card. We knew it was irresponsible when we were using credit cards to pay for living expenses, but we didn't have much choice. It was the means to an end. We just had to believe it was all going to work out, and I guess in a way it did.

BUT... again, everyone's situation is different. Not everyone should get new loans. And you're right - once you reaffirm you are totally on the hook again which is not the best decision for everyone. Our house is the most important thing we own. One way or another we will find a way to pay for it. That's debt worth having in my book.

[Chucksoutalu]

I re-affirmed my house. I am a disabled vet and am looking at refinacing as well. I can easily handle my payments now, and the whole issue with BK was to maintain my home for my family. However, if I can refinance it would save even more money and perhaps pay off the house sooner.

BK was a tuff but needed path. But compared to what I have been through overseas.........it is all gravy!

[ladyjenn]

I re-affirmed my house. I am a disabled vet and am looking at refinacing as well. I can easily handle my payments now, and the whole issue with BK was to maintain my home for my family. However, if I can refinance it would save even more money and perhaps pay off the house sooner.

BK was a tuff but needed path. But compared to what I have been through overseas.........it is all gravy!

Is it easier to re-fi or modify if you re-affirm after BK? Can you ask the mortgage company to modify as a stipulation of re-affirming?

[Chucksoutalu]

Havin got that far as to refi on the house! All things considered I am still not discharged and case closed. I believe it (REFI) will be difficult based on the BK, which bank you deal with, how much you owe, how much you make, and of course what the house is worth now. Lots of variables come to play. So the answer is................ I just dont know! And I can guarantee my situation is and will not be the same as anyones elses. I research reasearch research the issues sooooooooooooooooo when it is time to take the step (as in BK) I am ready to go forward.

[lrprn]

Is it easier to re-fi or modify if you re-affirm after BK?

Frankly if your property is worth a lot less than its current market value, it's almost never in your best interests to reaffirm, modification or not.

Can you ask the mortgage company to modify as a stipulation of re-affirming?

Asking isn't nearly enough. You need to get a guarantee in writing in an iron-clad, signed legal contract that your lender will modify your mortgage and the modification terms as well before you'll agree to reaffirm. My guess is your lender won't be willing to sign a modification agreement like this.

Many forum members here were promised a modification by their mortgage lender that after months of teasing them along was NEVER done. Those members ended up here surrendering their homes in Ch 7 or Ch 13 because they were left with no other choice.

If you have retained a bk lawyer to file your case, then you need to discuss at length whether reaffirming makes sense in your situation before doing anything or saying anything to your mortgage lender. Unless you are in a few unique situations, most bk lawyers are going to tell you not to reaffirm.

Although it may be hard to hear this, please don't make an emotional decision to reaffirm hoping for a modification that never comes. If you reaffirm and the modification doesn't happen, it will likely leave you stuck with a home you can't continue to pay for and can't sell for what you still owe on it. It will ruin you and your family financially and leave you no option to ever discharge the debt in bankruptcy down the road because you reaffirmed it.

A house, no matter how emotionally attached you are to it, is still just a thing. Don't allow yourself to be owned financially by a thing. A home can be replaced later - typically with a good credit record within just 2-3 years of filing Ch 7. Think through all your options very, very carefully. There's a great deal of financial risk to you if you reaffirm without a written, signed contract for modification of your mortgage already in place.

[ladyjenn]

Frankly if your property is worth a lot less than its current market value, it's almost never in your best interests to reaffirm, modification or not.

Asking isn't nearly enough. You need to get a guarantee in writing in an iron-clad, signed legal contract that your lender will modify your mortgage and the modification terms as well before you'll agree to reaffirm. My guess is your lender won't be willing to sign a modification agreement like this.

Many forum members here were promised a modification by their mortgage lender that after months of teasing them along was NEVER done. Those members ended up here surrendering their homes in Ch 7 or Ch 13 because they were left with no other choice.

If you have retained a bk lawyer to file your case, then you need to discuss at length whether reaffirming makes sense in your situation before doing anything or saying anything to your mortgage lender. Unless you are in a few unique situations, most bk lawyers are going to tell you not to reaffirm.

Although it may be hard to hear this, please don't make an emotional decision to reaffirm hoping for a modification that never comes. If you reaffirm and the modification doesn't happen, it will likely leave you stuck with a home you can't continue to pay for and can't sell for what you still owe on it. It will ruin you and your family financially and leave you no option to ever discharge the debt in bankruptcy down the road because you reaffirmed it.

A house, no matter how emotionally attached you are to it, is still just a thing. Don't allow yourself to be owned financially by a thing. A home can be replaced later - typically with a good credit record within just 2-3 years of filing Ch 7. Think through all your options very, very carefully. There's a great deal of financial risk to you if you reaffirm without a written, signed contract for modification of your mortgage already in place.

In my case, my house is about a wash between what we owe and the value. Unfortunately 19 months ago, we re-fi'd from a 5.5% fixed to a 9.63% fixed 40 yr (YES 40 year) to get money to pay debt off. We used ALL the equity in the hosue and this is my biggest regret now. I am sick about it and fear that with the market, the house may have lost value and be underwater a little. What I want is to get our interest rate down and go to a 15-20 year mortgage, and I am not sure how to go about that, or do I have to just wait the 2 years to re-fi. I am thinking since we will still be able to make the mortgage payments as is, they won't do anything for us. If they knock out interest rate down, and lower the number of years, the payment would be about the same as it is now. I guess I just don't want to have to wait to get a better interest rate, but I understand that I may have to. Do they still show that you are making payments if you don't re-affirm? If not, how will a mortgage company ever give you another mortage if they think you aren't making payments?
How does it work when you go to re-fi a few years down the raod and you didn't re-affirm since it will technically show a 0 balance?

Thank you so much for listening and helping. This is the hardest decision we have ever made in our lives and it is still eating me alive, although I know we will better off after this. I fear some how if we don't re-affirm they will kick us out, even though we are current.

I have gotten on anxiety medicine over this, and I think I make too much of it. I wish I could just be happy with the fresh start, as I know many of you all are so much happier after filing, right? Please tell me this will all be worth it in the end! Thanks again!