Interesting - Why do so many Chapter 7 filers want to keep an UPSIDE DOWN home loan?

[ccsjoe]

I've seen many people point to the TAX ADVANTAGES of the STAY AND PAY strategy.

From what I have heard, when people do not reaffirm, the lenders will no longer (a) send you monthly mortgage statements and (b) no longer report your interest paid to the IRS.

I WONDER HOW THE STAY AND PAY CROWD IS GOING TO BE ABLE TO PROVE TO THE IRS THAT THEY EVEN PAID INTEREST - LET ALONE HOW MUCH.

Maybe someone has real life experience here who can share????

gman, are you certain they do not report to the IRS? I think this might not be right. Regardless of dischargeability, they are still charging, receiving and applying interest, and they still have to report it. The only thing that was discharged was their ability to collect on the debt, not the debt itself, which is why they no longer send statements or report to the bureaus or send information only statements. That is why you can voluntarily make your payments and create the "stay and pay" situation. But reporting to the IRS is a wholly different beast than BK. I understand what you said, but something there doesn't ring right to me.

I know you research a lot, so I'm not questioning you, just want to know your source on this one, as I'm reasonably certain something's off.

[gman]

gman, are you certain they do not report to the IRS? I think this might not be right. Regardless of dischargeability, they are still charging, receiving and applying interest, and they still have to report it. The only thing that was discharged was their ability to collect on the debt, not the debt itself, which is why they no longer send statements or report to the bureaus or send information only statements. That is why you can voluntarily make your payments and create the "stay and pay" situation. But reporting to the IRS is a wholly different beast than BK. I understand what you said, but something there doesn't ring right to me.

I know you research a lot, so I'm not questioning you, just want to know your source on this one, as I'm reasonably certain something's off.

Candidly - I do not know if they report it or not.

I have read in many places that they no longer send the homeowner (is that the right term? haha) any monthly statements.

Maybe someone with real-life experience can chime in?

I'd just hate for people to solve one problem and potentially create another....Again, better safe than sorry.

If one is going to have only one good crack at a Chapter 7 - you might as well get it right the first time.

[brokejoker]

We are staying and paying and both mortgages send us monthly statements. They have the total interest paid to date on each statement. They are marked for informational purposes only since we didn't reaffirm.

[ccsjoe]

Candidly - I do not know if they report it or not.

I have read in many places that they no longer send the homeowner (is that the right term? haha) any monthly statements.

Maybe someone with real-life experience can chime in?

I'd just hate for people to solve one problem and potentially create another....Again, better safe than sorry.

If one is going to have only one good crack at a Chapter 7 - you might as well get it right the first time.

Not sending monthly statements is correct, monthly statements contain statements attempting to collect on a debt, which is a violation since the ability to collect on said debt was discharged. That is why they created so called "information only" statements that the homeowner (agree with you, is this the right term?) can request.

Interest though, they as a corporation are required to report it to the IRS under the various categories of income received for appropriate taxation, and in doing so, have to generate a report showing the source (i.e. the so called homeowner).

I agree, I'd like to see someone with experience chime in here, but because we are dealing with two different beasts, I can conceivably understand not being liable for the loan AND receiving the tax benefit on top of it all.

[Freddy03]

I just called my mortgage company (annoymously) and they said I would still received a 1098 because they have to report all interest paid.

[debee]

Allergies. Can't live in rentals because we can't do anything about musty odors, carpets, etc.

[IBroke]

Allergies. Can't live in rentals...

Me neither. I'm allergic to landlords...

[keepmine]

I think some of the posts in this thread are alarming people unnecessarily.
I filed bk in 05 a few weeks prior to bk reform.
I didn't reaffirm and my mortgage lender {Regions Bank} sends an annual statement along with a coupon book for the next year. The letter clerly states that this is for informational purposes only and is not an attempt to collect a debt discharged in bk. I also get a 1099 showing interest paid for the year that I use for my income tax returns.
I've been on this site since 06 and a few others prior to that. I've never heard the term "constructive reaffirmation" nor, I have seen any post on any site where a lender has forclosed on a mortgage that was not reaffirmed years after the fact.
Do you have any caselaw that shows where this has happened?

[IBroke]

I've never heard the term "constructive reaffirmation" nor, I have seen any post on any site where a lender has forclosed on a mortgage that was not reaffirmed years after the fact.
Do you have any caselaw that shows where this has happened?

That is a good point. I'm also very active on loansafe.org and so far, I haven't heard of this case either. If it exists, it might well be a very rare occurance.
I even tried to google it and within 30 minutes of searching, I only found one post of a woman who claimed that "her husband heard of it".

[screentest]

Hello All,

I have the same quandry as many on this board reference stay and pay or rent. Currently, I am 350K upside down and our house will NEVER appreciate back to the highs of 2005 again or anywhere near the balance I owe anyway. Once my 7 goes through and I don't reaffirm, I have to make the choice to stay and pay the modified payment or just move on, live rent free for a year and put this all behind me.

We received a loan payment modification at the beginning of this year that is very affordable and maybe even a little less than the going rental rate. This does not however factor in the taxes, insurance and maintenance I must pay every month and the loan mod is only 48 months and then back to the insane payment.

Housing will never in my opinion and that of almost every expert, and I use that term lightly, ever return to the highs of 2005 for many reasons, especially here in SoCal.

Too may factors have changed, lending options, lending rules, demographics of once high-end neighborhoods, high-end incomes and jobs leaving, abandoned foreclosed homes etc etc. Those overinflated manufactured highs were just a fabrication anyway. I am sorry I bought into it.

Putting all this together makes the option clear. It's not if we are going to leave this house it is just when. Should we stay and take advantage of the tax break for a few more years or just leave and get this behind us.

Smart money says just stop paying now and GET OUT!

One thing that has not been mentioned here is the stay and payers must resolve their mortgage issue if they are EVER to get another mortgage and move on. Remember, it is going to be at least 3 years after you dispose of your current house until you can get into another one as an "owner." Doesn't matter if you don't owe the debt, you must still complete the transfer (foreclosure) process and then start the 3 year wait until you are minimally qualified to get a mortgage again. You could stay and pay for 5 more years, have rebuilt strong credit and maybe a solid savings and decide, hey, things are looking good, maybe we should move now and get into that better neighborhood or school district. Fine, but you will move as a renter and NOT an owner because you have not yet resolved the issue with your current stay and pay situation.

If your neighborhood continues to deteriorate, your neighbors foreclose in the future and renters start taking over the place then you may decide its time for you to go. Title transfer back to the bank and then 3 years wait so you become a renter anyway.

Ironically today those that went through the first wave of foreclosures in 2005 and 2006
are now buying homes again at the market bottom. One of our neighbors that left in 2006 and rented for 4 years just closed escrow on a very similar home they left with a mortgage of 690K. Their new mortgage is only 289K and their new mortgage payment is less than my modified payment today.

I stayed here hoping for a turnaround in the market, a new federal program that would have helped, a loan mod or principle reduction I could live with or any other way to save the home I built and loved. Just not going to happen.

I understand those that are only under water a little trying to stay and hope for the best but in my situation this is not an option. I will be a renter this time next year for sure.

Good luck to all.

ST

[Fallonedward]

I have a similar situation as another poster. My house is upside down by 75K. When I file Ch 7 I do not intend to re-affirm just keep paying and stay. The reason I am doing a pay and stay is that I have searched rentals in my area (would need 3 bedrooms for my family of 5) and everything is higher then what my mortgage is. By staying I allow my middle son to finish high school with all of his friends and live in an area we feel safe in. Then if need be we can move on our terms not someone else's

[IBroke]

One thing that has not been mentioned here is the stay and payers must resolve their mortgage issue if they are EVER to get another mortgage and move on. Remember, it is going to be at least 3 years after you dispose of your current house until you can get into another one as an "owner." Doesn't matter if you don't owe the debt, you must still complete the transfer (foreclosure) process and then start the 3 year wait until you are minimally qualified to get a mortgage again. You could stay and pay for 5 more years, have rebuilt strong credit and maybe a solid savings and decide, hey, things are looking good, maybe we should move now and get into that better neighborhood or school district. Fine, but you will move as a renter and NOT an owner because you have not yet resolved the issue with your current stay and pay situation.

That's interesting. Are you sure that a "disposed" mortgage discharged in a CH7 BK still counts as a foreclosure if the borrower decides to walk? I do know, however, that the lender is certainly not allowed to report it as such on the borrower's credit-report..

[screentest]

Yes, it should not be reported as a foreclosure on your credit report; however, you must still go through the process of title transfer back to the bank (foreclosure, DIL, short sale etc) even if you are not responsible for the debt. Until this is cleared, any new lender will find the pay and retain house in your name when they complete a title search.

The lien in your name must still be removed legally before you can proceed with a new mortgage. Whether or not it will be reported as a foreclosure on your credit report is heavily debated on loansafe.org. Because a foreclosure is a legal process, it gets reported on your credit report as a public record; however, the loan account attached to your mortgage will show IIB.

This public record of foreclosure will take at least 36 months of seasoning under FHA lending rules before you can get another mortgage. Longer for conventional loans.

There is also a debate about when title is transferred. Some believe title is transferred when the bank takes back the property while others report title transfers when the bank re-sells the property to someone else. After that transaction the 3 year clock begins, not before.

As you can see this can drag out the opportunity for a new mortgage many more years than people are prepared for. This is another reason why I am getting anxious to get my mortgage dealt with and move on.

I am no expert here, just studied these scenarios over and over agin for the last couple of years. For further info here go to loansafe.org and check mortgage bankruptcy.

ST

[sillywalks]

Just do yourself and your family a favor - talk to a few lawyers about the possibility that contractually you will be reaffirming the loan SIMPLY BECAUSE YOU CONTINUE TO MAKE PAYMENTS AFTER THE BK.

The law on this will be governed by state - not federal BK law - so I have no idea what the outcome would be in your situation.

Better safe than sorry.

Gman, I'm curious because we are both in Georgia -- do you know Georgia's laws regarding not reaffirming but continuing payments? If I file, I would not reaffirm (unless I got a super deal). According to Zillow, I am underwater by about $15K -- but that does not include the $50K I put into the house to finish off the basement.

However, I will stay in my house because I am renting the basement for $650 a month. I could probably ask at least $100 more, but this price lets me be picky about who I rent to. That rent brings my payments (including escrow) to $750 if you don't deduct for extra utilities (probably $100 a month). I definitely could not rent for that. The house is still fairly new, so not too much maintenance needed.

Any info about GA you care to share, I would appreciate it!

[tay666]

Also, the "rent is the same or more" argument is pretty weak. Owning a home almost ALWAYS costs more than renting when you factor in ALL the costs of ownership.

I know I am one of the exceptions to this.
My mortguage payment is $470 (which includes insurance and taxes)
Cheapest rentals we have seen in the area are in the $600 range.
Most of which are not nearly as well insulated or weatherized as our house is, so the heating costs in the winter would also be considerably higher.

So for us it would be a no brainer if we were slightly underwater.
Especially since we have been here for 18 years now and have lots of memories attached.

Thankfully we actually have equity in the house as it sits right now.