What happens if you walk away from the house after BK?

[Joe Farmer]

I want to keep the house now because the payment keeps me eligible for a CH7. But after I file i may not be able to afford it. What happens if I sign an reaffirmation for the mortgage and then walk away from the house? What happens if there is no reffirmation and then I walk away from the house? How long could I stay ion the house in either situation without paying the mortgage? In this state, FYI, deficiency judgments are not allowed on mortgages if that matters. Thanks.

[FreshLikeADaisy]

Well, Joe, I don't know much but I can tell you one thing for sure: if there is ANY possibility that you intend to walk away from the house post-bk, DON'T sign a reaffirmation. And for as long as you intend to live in it during and after bk, keep your payments absolutely current.

Basically, what you want to do is a ride-through if the lender will allow it, because even though the Ch7 bk discharges the debt of the mortgage, you're still paying and living there, and the bank doesn't want your house, so it works out well for as long as you stay.

If you don't sign a reaff, and just walk away from the house, that's it. You're done. Providing there are no liens involved, and your responsibility for the debt of the mortgage was discharged in a successful Ch7, you are completely free. No deficiency judgements, no "forgiven debt" taxes (at least on federal returns), nothing to keep you there.

So if you sign a reaffirmation you need to look it over very carefully with your atty in order to know exactly what terms you are signing your name to: they can create a reaff that significantly changes the terms of the loan, and once you sign it, you're locked in. That reaff then IS your mortgage. So if you sign and then default, it will result in foreclosure just as if you had never bk'd, and you will be responsible for the terms as set forth in the reaff in the event of default.

As far as timelines go, that specifically depends on your state foreclosure process and on your lender.

A deficiency judgement doesn't really matter once you've filed Ch7; once the house is foreclosed and the bank has possession of the property, that deficiency judgement becomes unsecured debt just like a credit card or signature loan, and it too is discharged in a Ch7.

There can be complexities such as liens that change the situation somewhat, but that's a pretty good picture of reaffirmation basics. Good luck!!!

[keepmine]

A good question for your lawyer.
I wonder if signing a reaffirmation is meaningless if, you can't be pursued for a deficiency balance?

[FreshLikeADaisy]

Keepmine, if the reaffirmation does nothing but reaffirm the existing terms of the loan, I'd agree. But I'm not at all certain that reaffirmations are limited to "reaffirming" in that I think some lenders are taking advantage of the fact that a reaff is, in essence, a new contract, and are thus changing some terms. I have only heard of this with unsecured debt (i.e. credit cards) and only a couple times, but there's no reason to think that mortgage lenders might not also hop on the same bandwagon.

So as unlikely as it might be, if the reaff changes any of the terms of the mortgage or gives the lender other unforeseen advantages, like penalties other than a deficiency judgement, I would not want to sign it, no matter how unenforceable it might be legally, if only because I would not want to subject myself to ongoing collections efforts.

Keep in mind I have never heard of this happening with mortgage lending, and I could just be paranoid... it's just something I myself would be wary of that would make a reaff more than meaningless even if a deficiency judgement can't be pursued.