Mortgage Modification Before Discharge: What does it mean really?

[hussainm2009]

We have filed for chaper 7 and currently in 60 days club. 341 is done and if everything goes well, we should be discharged by the end of this month. We are behing in our primary mortgage for few month. I have included my primary residence as retain and pay. I have been making trial payment for a permanent mod while during in BK as my attorney sent a letter to my mtg company to continue working with us. What I heard today is the mtg company will offer a permanent mod @ 3% interest rate for 40 years and send it to my attorney.

My question to the forum is what exactly it means? If I sign the mod and accept the new modified payment, does it mean I become current and continue making payment but my personal responsibility will be discharged during bk i.e. I can keep the property as long as I can make the modified payment. Or does it mean I have reaffirmed the mortgage (even thought I listed it as retain and pay) and personally become responsible again? Please advise. Thanks!

[newbie2]

We have filed for chaper 7 and currently in 60 days club. 341 is done and if everything goes well, we should be discharged by the end of this month. We are behing in our primary mortgage for few month. I have included my primary residence as retain and pay. I have been making trial payment for a permanent mod while during in BK as my attorney sent a letter to my mtg company to continue working with us. What I heard today is the mtg company will offer a permanent mod @ 3% interest rate for 40 years and send it to my attorney.

My question to the forum is what exactly it means? If I sign the mod and accept the new modified payment, does it mean I become current and continue making payment but my personal responsibility will be discharged during bk i.e. I can keep the property as long as I can make the modified payment. Or does it mean I have reaffirmed the mortgage (even thought I listed it as retain and pay) and personally become responsible again? Please advise. Thanks!

It all depends on the note that is drawn up by the mortgage company. If I were you I wouldn't sign anything unless your attorney has looked it over. Pay your attorney extra if you have to, it will be well worth the cost to make sure you aren't reaffirming the mortgage by doing this modification.

[tcreegan]

modification = reaffirmation

Hello Hussanim2009,

"My question to the forum is what exactly it means? If I sign the mod and accept the new modified payment, does it mean I become current and continue making payment but my personal responsibility will be discharged during bk i.e. "

No, once you sign, you have a new contract w. the mtg company. You are liable for at least 8 yrs (next time you can file BK) If you default, they can foreclose, sell the house at auction, and sue you if the price didn't cover all the loan.


I can keep the property as long as I can make the modified payment. Or does it mean I have reaffirmed the mortgage (even thought I listed it as retain and pay) and personally become responsible again? Please advise.

Yes and Maybe.... it doesn't matter what you listed it. The new BK rules got rid of "retain and pay" anyhow. What makes a difference is the mtg company. If they let you stay and pay the modified amount without you or your attorney signing anything, most states have laws that say if you are current on your payments, you can stay; they can't foreclose. You can walk away later b/c you are not personally responsible for the debt.

If the mtg company will not let you stay w/o signing new papers, you become personally responsible for the debt again. If you refuse to sign the papers, they can foreclose. But....they may not....they might just let you stay and pay b/c the market for real estate is terrible right now.

Ask your lawyer if your state has a law where a mtg company cannot foreclose if the homeowner is current with his payments.

Hope this helps....maybe a little.....

Tom in Colo




Thanks!

[hussainm2009]

Update

Thanks for your opinions. Just wanted to update with new information to see if I get any new/different opinions.

I have received a modification proposal in UPS today. They offered a mortgage rate of 3% for 40 years, added my missed payments to the unpaid balance and amortized the entire amount over 40 years. Net result is a $430 reduction in my monthly payment. The total outstanding principal is close to my home's worth. And with the discharge of unsecured debt, I can afford the new payment. It almost looks like a refinance since they are adding the missed payment to the unpaid balance and amortized the entire amount.

Wells Fargo sent the proposal to my BK attorney as well. They suggested, if I agreee to the proposal, my attorney should submit a petition to bankruptcy court seeking court's consent on the modification since we are still in active bankruptcy and waiting for discharge. Once we get a written consent from the court, we should forward it to them and they will "generate the loan document and send it to me for original signature". I see Tom's opinion above as modification = reaffirmation.

The confusing part is, in the modification proposal letter they sent today also says the following: due to differences from district to district, wells fargo does not offer a standard reaffirmation package. If I intend to reaffirm and if it's in my best interest, we should send our district specific reaffirmation papers and they will fill in the info to comply with presumption of undue hardship due to reaffirmation part and we can finalize it through court. This last part implies to me that if I only sign modification agreement and don't do the additional steps of reaffirmation, it's not considered as reaffirmation. My interpretation is to keep the property in Ch7 as retain and pay, I have to be current and I am not. So modification allows me to be current so that I can continue to make payment. However, my personal responsibility is discharged in bankruptcy and my home remain obligated to satisfy Wells Fargo's claim.

Anyone else in the forum went through the dilemma or discussed with an attorney? If yes, would you please share your own experience?

[tcreegan]

local district forms

Hello hussaim2009,

The confusing part is, in the modification proposal letter they sent today also says the following: due to differences from district to district, wells fargo does not offer a standard reaffirmation package. If I intend to reaffirm and if it's in my best interest, we should send our district specific reaffirmation papers

This just means that each court has its own forms for filing a reaffirmation. WF does not keep a file of each courts forms, so you/your lawyer have to get the right forms from the court, give them to WF and they will fill them out. Then you/your lawyer submits the reaffirmation to the court for approval. When the court approves, WF will send documents to finalize the deal.

Usually it is not good to reaffirm, but 3% fixed over 40yrs with arrears amortized and not underwater are pretty attractive terms. I would reaffirm.
If the court denies the reaffirmation, I would have my atty negotiate for the same terms and sign after the bk case closes.

Heck, if I could have gotten GMAC to offer those terms, I wouldn't even be in BK !!!

Tom in Colo