Mortgage scenarios - dangers of not reaffirming?

[btbeme]

Two homes -

Home 1 - 1st mortgage for $557k, HELOC 2nd for $85k. Home value about $425k.

Home 2 - Mother's house, I have mortgage in my name, for about $430k. Value is about the same, but I would expect that to go up over the next few years (yes, I said up).

Questions: Are there "hidden dangers" to not reaffirming? I would like to settle the HELOC lien post-Ch7 discharge, and would like to modify the 1st mortgage on Home 1 after discharge - will these be possible? On Home 2 - what is the risk of a foreclosure or loan acceleration should the value far exceed the mortgage amount in the future? How about selling one - or both - homes in the future - how does that work? Can a reaffirmation be filed at any time during a Ch 7 or are there cutoff dates?

We want to stay in Home 1 but are willing to leave should it be beneficial to do so. Home 2, however, we want to preserve (remember, Mom lives there). I understand the general consensus is to NOT reaffirm, but I would like to know of any "trap doors" that might open beneath me post Ch 7.

I have read these forums until my eyes bled. While I am pretty sure the answers are in here somewhere, I cannot find them...would appreciate your knowledgable input...

[tcreegan]

Hello btbeme,

1st mortgage for $557k, Home value about $425k; We want to stay in Home 1 but are willing to leave should it be beneficial to do so
Unless you got the figures switched, yeah it would beneficial to get out of this one

I just saw a post where somebody reported that the mortgage lender wouldn't modify pre-BK, but became very willing after the BK was filed. Haven't seen any posts on post-discharge modifications.

The hidden danger that came to my mind was 'can you afford both mortgage payments w/o getting back into a BK situation again?'

Post-discharge the HELOC becomes essentially worthless, folks regularly report settling for pennies on the dollar.

what is the risk of a foreclosure or loan acceleration should the value far exceed the mortgage amount in the future?
Unless you have really strange terms in your loan agreement, this should not be a default or breach of contract, thus no foreclosure. Think about it; toward the end of the mortgage term the value is going to far exceed the mortgage amount.

Selling a reaffirmed home should be no different than selling a home w/ a mortgage. Now selling a discharged and not reaffirmed home, that is a good question. I haven't seen anything about that on the forum.

The most-commonly cited non-reaffirmation fear is foreclosure. The good news is that case law is piling up holding that a BK does not automatically cause a default or breach of contract, and as long as you stay current, keep the terms of the contract, the lender cannot foreclose on you. But....always a but...does your contract have a BK clause stating a BK is a breach of contract?

Those are my thoughts on your questions, just remember I am no expert...just retelling what I have read elsewhere on the forum
Hopefully one of the experts will weigh in here....

Tom in Colo

[btbeme]

Thanks, Tom.

Larger questions remain - what happens in AZ if I am late on a single payment - immediate foreclosure? I simply cannot imagine a bank being eager to foreclose without at least trying to work something out with the owner. And how about an eventual future sale? Can i even sell? Does a workout or modification reinstate a financial responsibility? I am not against paying for a mortgage, but the financial reality is that I would MUCH rather pay myself a quarter million dollars in savings, retirement, and kids education investments over the next 10 years than dump it into a deep hole and hope that it fills it back to level.

As far as the HELOC is concerned, if they won't take about $1000 for a lien release, they can wait forever to get absolutely nothing from the eventual sale or surrender of the house. That will be my one and only take-it-or-leave-it offer.

[tcreegan]

Hi btbeme,

what happens in AZ if I am late on a single payment
the state doesn't matter as much as the terms of your contract. It spells out what can/will be done if you are late

Does a workout or modification reinstate a financial responsibility?
If you sign it before you file, no. If you sign it after you file the BK, yes the financial liability comes back. That is probably why lenders become a lot more willing to deal with you after you file.

financial reality is that I would MUCH rather pay myself a quarter million dollars in savings, retirement, and kids education investments

It is worse than you think, the quarter million is just principal. Add in the interest and see what you get!!

Boggles the mind...

Tom in Colo

[helpmeout]

I wouldn't reaffirm either one. For home 2, I am assuming that your name is somewhere on the deed or you wouldn't have been able to get a mortgage on it. If there is enough equity, and you will have to get a recent appraisal to determine fair market value, the trustee will sell it unless you have enough exemptions to cover it. You are only able to use any homestead exemption on the home where you live.

You really should consult with a few bk lawyers and see what your options are regarding the second home.

[blockhead]

"But....always a but...does your contract have a BK clause stating a BK is a breach of contract?"

Most do, as they use the HUD forms but our lawyer contributor pointed to a provision in the bk code that purportedly stops foreclosure or acceleration of note just because of the bk filing -and there are state laws too to consider.

I didn't reaffirm with WF and everything is just as it was before - still have online access - still get statements - they just have FOR INFO PURPOSES only printed at the top and a note saying they'll take voluntary payments. I'm not underwater either.

[tcreegan]

Hi all,

our lawyer contributor pointed to a provision in the bk code that purportedly stops foreclosure or acceleration of note just because of the bk filing
Hi blockhead, if you can remember what section the provision is in, could you post it? It would be a great help to lots of folks...

I didn't reaffirm with WF and everything is just as it was before - still have online access - still get statements - they just have FOR INFO PURPOSES only printed at the top and a note saying they'll take voluntary payments.

Nice to see a lender being reasonable, you would think they all would do this! Good job WF!

Tom in Colo

[Freddy03]

I'd like to add that our mortgage is with WF also and they have been nothing but helpful when we got behind. We didn't quailfy for a mod b/c we are under the 31% but they did push the 2 payments we were behind twice to the back of the loan. Granted it was WF who talked up into the darn refi that made our mortgage almost more than what we can handle.

Oh I also have never been charge one late fee either.

I'm planning on NOT re-affirming the loan b/c we are upside down by 100K! Hoping to just pay and stay for as long as my credit builds up to buy something else in 3 years.

[blockhead]

Hi all,

our lawyer contributor pointed to a provision in the bk code that purportedly stops foreclosure or acceleration of note just because of the bk filing
Hi blockhead, if you can remember what section the provision is in, could you post it? It would be a great help to lots of folks...

I didn't reaffirm with WF and everything is just as it was before - still have online access - still get statements - they just have FOR INFO PURPOSES only printed at the top and a note saying they'll take voluntary payments.

Nice to see a lender being reasonable, you would think they all would do this! Good job WF!

Tom in Colo

No, sorry I forgot. Des posted it - if he sees this he might repost it. My own attorney did not refer to bk statutes when I asked him whether the lender could accelerate the note based on filing Ch7 alone and when payments are up to date. Instead he said state law trumped the wording on the note regarding bankruptcy being a default.

I also had a 45K business credit line with WF that I personally guaranteed and that was discharged in BK. The interest rate on that stayed at 10.5% even after 10 months of not paying before filing, as opposed to the 29.99% Amex, Citi and Chase quickly applied. They didn't sue me either.

[tcreegan]

Instead he said state law trumped the wording on the note regarding bankruptcy being a default.

Now this I have heard of, from a lawyer just north you in S. Car. in fact. And more and more federal courts are agreeing; filing a BK is not a breach of contract

Wells Fargo seems like a great lender to work with, wish I knew that before I got stuck with GMAC mortgage !!

Tom in Colo