Why reaffirming a mortgage is a very, very bad idea.

[IBroke]

I think I did answer in the 2nd part. . . "If you are in default, the lender proceeds under state law regardless of such an agreement. State law is the same regardless of whether or not you signed a reaffirmation agreement".
So, it is not easier or harder if you sign. Lender still has to use state law to foreclose and state law has no special procedures for those who do or do not sign reaffs.

IBroke, a foreclosure process has to follow very specific state civil code procedures, steps and timelines, regardless of whether you reaff'd in bk or not. Just because you retain and pay, they still have to send NOD, etc...the bk has no effect on "cutting steps" in foreclosure as they are governed by a separate set of laws, unaffected by the bk.

Thanks, folks, that clears it all up.

[tobee43]

So, I pretty much have an answer to everything. . . most lawyers do. . . in response:

1. “Okay but what if you live in an anti deficiency state - CA - and you only have a first (second already settled and reconveyed) A reaffirmation should help your credit and there is no possible downside.”

Besides the comments about a refi, what happens if the legislature changes the law retroactively. This is what happened in Arizona 1 year ago. The legislature removed the anti deficiency protection for investors. The law took effect but the Governor signed an executive order repealing it.

2. "And it is really, really sad that people could have been living rent-free for the 2-3 years it took the lender to foreclose, saving $20K, maybe $30K, banking it in CDs or TBonds and making a nice downpayment on a short-sale house after their credit rebounds but before the housing market does.”

Totally agree with you Tom. . . I call it milking it for all it’s worth. 60 Minutes calls it a strategic default.

3. “if u file for bk7 u should not sign ANY reaffirmation. is that what I am led to believe?”

No. The Code requires one to sign reaffirmations for certain things such as vehicles but not for real estate. Further some judges are taking the position, in defiance of the credit industry, that reaffs are not necessary and if the debtor is current, the lender cannot repossess.

4. “What I always wanted to ask in regards to BK and mortgage-reaffirmation: If you DON'T reaffirm, do you still have the same legal rights in case you are getting into difficulties paying your mortgage? I mean, if you DON'T reaffirm and you miss a payment, can they foreclose on you faster? Here in Florida, it takes some time to lose your home once you stopped making your payments. I'm wondering if a borrower without a reaffirmation would be granted the same time by law. I often heard the claim 'If you don't reaffirm and miss one payment, you lose your home" - so is there really a legal difference or not?”

a. We need to dispel the myth that you have “legal rights” other than those contained in the contract, if you default. The lender is under no obligation to “work with you”. If the lender is “government backed”, it may have to “offer” you a program but. . .

b. Assuming a reaffirmation agreement is not required by the bk code (or your particular judge), if you are not in default under “non-bankruptcy” law and you have not signed a reaffirmation agreement, there is nothing the lender can do. You cannot be forced into signing such an agreement. If you are in default, the lender proceeds under state law regardless of such an agreement. State law is the same regardless of whether or not you signed a reaffirmation agreement.

Des.

des.......i'm BLOGGING This THREAD....

while i understand all too well what a difficult decision it is to fore go one's home...we did it after living there 33 years because it was a sound business decision...not an easy one...but a sound one.

we came from a state...had we reaffirmed then not met the obligation after the discharged bk, we would have been responsible NOT only for fees associated with the foreclosure and this state is notorious for having foreclosure fees in excess of between 50k-100k..., (one of the highest in the country), but we would have also been responsible for the deficiency amount between the bank sale and the balance of the note...or mortgage.

one must, as difficult as it is....put all emotions aside to make a sound financial decision that best serves your future.

i personally fought it tooth and nail...until finally resolve and reality set in.

looking back it was one of the best decisions we ever made and there is not a day that i am sorry that we left the house.....we took our memories...they never leave...but the bank we were with and knew refused to work with us...so we called THEIR BLUFF since they refused to work with us, as des, you clearly pointed out they simply do not have to....sooooooo


here's the keys...have fun with the black mold, flooding problems, cracked foundation....on and on and on as in other threads i have gone.

[wnguyen]

3. “if u file for bk7 u should not sign ANY reaffirmation. is that what I am led to believe?”

No. The Code requires one to sign reaffirmations for certain things such as vehicles but not for real estate. Further some judges are taking the position, in defiance of the credit industry, that reaffs are not necessary and if the debtor is current, the lender cannot repossess.

Dear Des

Thanks for taking time to answer the questions in this forum. The bold part above puzzled me a little bit. Does it mean a debtor has to reaffirm his/her vehicle because the Code requires? My case specifically, my lawyer said there was no need to reaffirm (disregard the paperwork sent by the lender) because they won't take the car if the loan is current.

[tyson24]

I was looking at my petition before I sign it, and notice there is no surrender or reaffirm checked in the statement of Intention for either my residential home or my rental property. My residence is current but my rental property is unpaid for 2 years but not yet in foreclosure. (Chase bank) If I do not surrender (in MN) will I have to pay the foreclosure fees if I do not surrender the home? Am I better to surrender it?

I am confused...not that it is that hard to confuse me these days

[despritfreya]

To wnguyen, in response to:

“Does it mean a debtor has to reaffirm his/her vehicle because the Code requires? My case specifically, my lawyer said there was no need to reaffirm (disregard the paperwork sent by the lender) because they won't take the car if the loan is current.”

11 USC §521(a)(6) states “in a case under chapter 7. . .in which the debtor is an individual (the debtor) shall not retain possession of personal property (like a car) as to which a creditor has an allowed claim for the purchase price (not a refinance or a title loan type debt) secured. . . by an interest in such personal property unless the debtor, not later than 45 days after the first meeting of creditors. . . either (A) enters into an agreement with the creditor pursuant to 524( C) (reaffirmation agreement). . . or (B) redeems such property from the security interest pursuant to section 722. If the debtor fails to act within the 45-day period. . . the stay. . . is terminated. . .

So based upon 521(a)(6) you must reaffirm or redeem and if you do not, the creditor is free to take action. HOWEVER,

Some jurisdictions have flat out held that so long as you are current and, based upon state law, if you fail to reaffirm there is nothing the lender can do. This may be the situation in your jurisdiction hence the reason your attny said you do not have to reaffirm.

In my jurisdiction state law does not help, but some of the judges are now warning creditors that they will have to answer to the court if they repo solely because the debtor did not reaffirm. I do not think the judge can really do anything but. . .

To tyson24, in response to:

“I was looking at my petition before I sign it, and notice there is no surrender or reaffirm checked in the statement of Intention for either my residential home or my rental property. My residence is current but my rental property is unpaid for 2 years but not yet in foreclosure. (Chase bank) If I do not surrender (in MN) will I have to pay the foreclosure fees if I do not surrender the home? Am I better to surrender it?”

The Code requires a Chapter 7 debtor (individual) to submit a Statement of Intention. If you did not it was most likely an oversight and should be corrected. While the Statement of Intentions may say you are retaining, so long as you do not sign a reaff it does not matter. Keeping or surrendering does not change the effect of a discharge. What does change the effect of the discharge is the signing of an official Reaffirmation Agreement and not rescinding it within the time period allowed. If, in your case, you stop making payments and do not sign a reaff you have effectively surrendered. But. . . please remember that if there is an HOA you must pay all assessments/fees that fall due from your filing date until the mortgage company forecloses.

Des.

[IBroke]

This is a very interesting thread because it activated my braincells to think about how we should proceed with my mother's finances next year.

She runs her own little business and we just "turbo-taxed" her first 1040 for 2009 (yeah, a bit late but we got it done). Total income was about $17K but the taxable income after the itemized deductions was $0. She only has to pay about $350 in Self-Employed tax. Our estimate is that 2010 might be a bit better - maybe around $24K. Looking at these numbers and considering that my mother doesn't have any assets besides some furniture in our house and the old car we both share (which is not yet paid off but will be when she files), I'd say a CH 7 is certainly in her reach as well.

The only thing giving me a headache is our second mortgage. We haven't made a payment in years and owe them about $150K. We were just recently able to get a HAMP on our first mortgage to reduce the monthly payment to a manageable $1,300/month. They actually wanted to revoke the mod but the judge on our case granted our motion to enforce our modification - so that should be a done deal.

I'm now trying to determine if we could lose our home if we would go the CH 7 route instead of CH 13. Due to the modification, the balance on the first mortgage increased to $560K and it would be great to have that liability discharged in a CH 7. What we certainly don't want though is a foreclosure triggered by the second. So once again, we owe $560K on the first, $150K on the second and the value should be close to $350K - at best (zillow puts it at $300K).

So how dangerous would be a CH7 in our situation? Do I get that right that the second mortgage would have to pay the foreclosure-costs PLUS the $560K before they could collect on anything? Why should they do that?

Immediately after discharge, we would start saving money to make the second mortgage a settlement-offer. What would be our options if they decide to deny it? I think CH 13 could be filed 4 years after the 7 but stripping wouldn't be an option any more because the debt would already be discharged, correct? And what if we would reaffirm the second mortgage in case they don't accept a settlement. Could it then be stripped in a potential CH 13?

Which BK CH would you recommend? It is a very though situation and I'm currently going through all possible scenarios. Guess not every case can be as simple as my CH 7...oh, well..

[AbbeyA]

This is a very interesting thread because it activated my braincells to think about how we should proceed with my mother's finances next year.

She runs her own little business and we just "turbo-taxed" her first 1040 for 2009 (yeah, a bit late but we got it done). Total income was about $17K but the taxable income after the itemized deductions was $0. She only has to pay about $350 in Self-Employed tax. Our estimate is that 2010 might be a bit better - maybe around $24K. Looking at these numbers and considering that my mother doesn't have any assets besides some furniture in our house and the old car we both share (which is not yet paid off but will be when she files), I'd say a CH 7 is certainly in her reach as well.

The only thing giving me a headache is our second mortgage. We haven't made a payment in years and owe them about $150K. We were just recently able to get a HAMP on our first mortgage to reduce the monthly payment to a manageable $1,300/month. They actually wanted to revoke the mod but the judge on our case granted our motion to enforce our modification - so that should be a done deal.

I'm now trying to determine if we could lose our home if we would go the CH 7 route instead of CH 13. Due to the modification, the balance on the first mortgage increased to $560K and it would be great to have that liability discharged in a CH 7. What we certainly don't want though is a foreclosure triggered by the second. So once again, we owe $560K on the first, $150K on the second and the value should be close to $350K - at best (zillow puts it at $300K).

So how dangerous would be a CH7 in our situation? Do I get that right that the second mortgage would have to pay the foreclosure-costs PLUS the $560K before they could collect on anything? Why should they do that?

Immediately after discharge, we would start saving money to make the second mortgage a settlement-offer. What would be our options if they decide to deny it? I think CH 13 could be filed 4 years after the 7 but stripping wouldn't be an option any more because the debt would already be discharged, correct? And what if we would reaffirm the second mortgage in case they don't accept a settlement. Could it then be stripped in a potential CH 13?

Which BK CH would you recommend? It is a very though situation and I'm currently going through all possible scenarios. Guess not every case can be as simple as my CH 7...oh, well..

I see you are in Florida ... why would you even want to consider keeping the house there? Why would you want to keep a house that has a 560k first mortgage PLUS a 150k second mortgage? With the housing market in Florida especially, you can get a pretty great house for MUCH MUCH less than 710k! Obviously it will take 3 years from a foreclosure to get a mortgage again, but this one seems like a no-brainer to me.

[IBroke]

I see you are in Florida ... why would you even want to consider keeping the house there? Why would you want to keep a house that has a 560k first mortgage PLUS a 150k second mortgage? With the housing market in Florida especially, you can get a pretty great house for MUCH MUCH less than 710k! Obviously it will take 3 years from a foreclosure to get a mortgage again, but this one seems like a no-brainer to me.

Well, the answer is simple: Renting is not an option because we can't afford it. Our first mortgage was reduced from $3,900/month to $1,300/month (and that's PITI). Moving itself would cost us $10K and there is no 3,800 sqft.-home on the market for less.

Our goal is to get rid of the second mortgage - not of the house where we invested a lot of money in. Keeping an underwater property often doesn't make much sense - but with a monthly payment that is about half of the rent of a comparable property - it certainly does - even economically. Times are gone where you can simply buy a house with $0 down. So IF we would get approved for a decent home after 3 years, what do you think would be required as a downpayment? $30K? Where would that money come from if we would have to pay $1000/month more in rent over the next 3 years and pay for 2 moving-expenses? And how high would that monthly payment be? Less than $1,300 PITI? I don't think that's an option with an annual income of about $30K.

As you can see, the idea of just walking away from that home might not be as good as it first appears. The only question is CH 7 or CH 13.

[despritfreya]

In response to:

"Immediately after discharge, we would start saving money to make the second mortgage a settlement-offer. What would be our options if they decide to deny it? I think CH 13 could be filed 4 years after the 7 but stripping wouldn't be an option any more because the debt would already be discharged, correct? And what if we would reaffirm the second mortgage in case they don't accept a settlement. Could it then be stripped in a potential CH 13?"

1. While the underlying debt is discharged in the 7 the lien passes through unaffected. The lien survives and the lender, if not paid, may exercise its rights against the lien. Will it? Probably not when it is sitting behind a $500k+ first with property worth $300k. But is has the right to.

2. As I have posted, reaffirming the 2nd makes no sense.

3. You DO NOT have to wait 4 years from the 7 discharge to file a 13. You only need to wait if you are wanting a discharge to be entered in the 13. Since you are not asking for a discharge and are seeking to strip the lien that survived the 7, you can file the 13 once you have the 7 discharge. The question will be whether or not the 13 was filed in "bad faith".

Practice pointer: You could try the strip in the 7. While there is no published authority to do this, if you file the 506 complaint, properly serve it and the lender fails to answer, you maybe able to get your judge to enter a default judgment. I did this once and was successful as the lender failed to file an answer. Had the lender filed an answer my client would have decided if she wanted to be a “test case”. If the answer was “no” we would have dismissed the adversary, filed her 13 (she had her 7 discharge) and filed a new adversary to do the strip.

Des.

[tobee43]

In response to:

"Immediately after discharge, we would start saving money to make the second mortgage a settlement-offer. What would be our options if they decide to deny it? I think CH 13 could be filed 4 years after the 7 but stripping wouldn't be an option any more because the debt would already be discharged, correct? And what if we would reaffirm the second mortgage in case they don't accept a settlement. Could it then be stripped in a potential CH 13?"

1. While the underlying debt is discharged in the 7 the lien passes through unaffected. The lien survives and the lender, if not paid, may exercise its rights against the lien. Will it? Probably not when it is sitting behind a $500k+ first with property worth $300k. But is has the right to.

2. As I have posted, reaffirming the 2nd makes no sense.

3. You DO NOT have to wait 4 years from the 7 discharge to file a 13. You only need to wait if you are wanting a discharge to be entered in the 13. Since you are not asking for a discharge and are seeking to strip the lien that survived the 7, you can file the 13 once you have the 7 discharge. The question will be whether or not the 13 was filed in "bad faith".

Practice pointer: You could try the strip in the 7. While there is no published authority to do this, if you file the 506 complaint, properly serve it and the lender fails to answer, you maybe able to get your judge to enter a default judgment. I did this once and was successful as the lender failed to file an answer. Had the lender filed an answer my client would have decided if she wanted to be a “test case”. If the answer was “no” we would have dismissed the adversary, filed her 13 (she had her 7 discharge) and filed a new adversary to do the strip.

Des.

really des...YOU may be one of the only atty's in the country that fight so hard for their clients.

a rarity indeed.

Practice pointer: You could try the strip in the 7. While there is no published authority to do this, if you file the 506 complaint, properly serve it and the lender fails to answer, you maybe able to get your judge to enter a default judgment. I did this once and was successful as the lender failed to file an answer. Had the lender filed an answer my client would have decided if she wanted to be a “test case”. If the answer was “no” we would have dismissed the adversary, filed her 13 (she had her 7 discharge) and filed a new adversary to do the strip.

so actually, you really don't know if the outcome could have yielded another result... had the complaint been answered and carried through...since this decision was based solely on the default. actually rendering the complaint moot. would have been an interesting argument had there been some written cases which you say there wasn't. a precedence looks good on a resume. (although sometimes i think you may be a pro bono pubic defender!! LOL!!!)

[keepmine]

Well, the answer is simple: Renting is not an option because we can't afford it. Our first mortgage was reduced from $3,900/month to $1,300/month (and that's PITI). Moving itself would cost us $10K and there is no 3,800 sqft.-home on the market for less.

Our goal is to get rid of the second mortgage - not of the house where we invested a lot of money in. Keeping an underwater property often doesn't make much sense - but with a monthly payment that is about half of the rent of a comparable property - it certainly does - even economically. Times are gone where you can simply buy a house with $0 down. So IF we would get approved for a decent home after 3 years, what do you think would be required as a downpayment? $30K? Where would that money come from if we would have to pay $1000/month more in rent over the next 3 years and pay for 2 moving-expenses? And how high would that monthly payment be? Less than $1,300 PITI? I don't think that's an option with an annual income of about $30K.

As you can see, the idea of just walking away from that home might not be as good as it first appears. The only question is CH 7 or CH 13.

I guess the question I'd have is, how can you afford a $560K mortgage on $30K annual income under any circumstances?
What percent of yoir income is going to housing? I'd think long and hard about this. Nothing will ruin a fresh start like trying to hang on to something you can't afford.

[tobee43]

I guess the question I'd have is, how can you afford a $560K mortgage on $30K annual income under any circumstances?
What percent of yoir income is going to housing? I'd think long and hard about this. Nothing will ruin a fresh start like trying to hang on to something you can't afford.

i agree.....


ibroke..it's hard...we went from a gorgeous 4000 plus sq foot home to approx 2100 sq feet...it's ONLY a house....

and while we worked hard for that life style for 40 years...it's over. we had to sit down and ask ourselves what is really important.

i have been to florida and now live here.......no way is almost any house worth 700k...unless you are living in a mansion...which is nice and ok...but one needs to understand as difficult as it is, it may be time to downsize.

our moving expenses exceeded 10k....they did...but since we stopped paying the mortgage we used that money for the move.

now instead of having a 1200 a month heat bill...it runs less than 300
our taxes on this place are 2200....as opposed to 13,000
maintaining this house is about $200 as opposed to over $1400

you get the point i'm certain.

it's an emotionally charged situation and decision. i will repeat it over and over...it was the BEST move we ever did.

however, only YOU or anyone else facing these questions, needs to do what is right for them. just think with your head and not your head and not your heart.

[despritfreya]

"really des...YOU may be one of the only atty's in the country that fight so hard for their clients. . .a rarity indeed."

Not really, just been in this business sooooo long that very little gets past me, or, more likely, my boss who has been doing this for a lot longer than I.


"so actually, you really don't know if the outcome could have yielded another result... had the complaint been answered and carried through...since this decision was based solely on the default. actually rendering the complaint moot. would have been an interesting argument had there been some written cases which you say there wasn't. a precedence looks good on a resume."

Very true. . .

Actually the possibility of doing the strip in a 7 was raised by one of our judges at a seminar. At that time there had been one case out of NY that said you could do it. That case was not a published opinion. Several months later a 2nd case came out of the same NY district. It was published and said you can't do the strip in a 7. A month later a 3rd case in the same district came out and cited to the published opinion. I filed the adversary in our case shortly thereafter and kept my fingers crossed.

The judge we had, had already signed a Chapter 7 strip judgment in another case where the lender failed to answer the complaint (not one of our cases). Our client was not really willing to fund the litigation so, yes, if an answer had been filed my boss would have had to decide if he was going to take the issue on pro bono.

Des.

[tobee43]

"really des...YOU may be one of the only atty's in the country that fight so hard for their clients. . .a rarity indeed."

Not really, just been in this business sooooo long that very little gets past me, or, more likely, my boss who has been doing this for a lot longer than I.


"so actually, you really don't know if the outcome could have yielded another result... had the complaint been answered and carried through...since this decision was based solely on the default. actually rendering the complaint moot. would have been an interesting argument had there been some written cases which you say there wasn't. a precedence looks good on a resume."

Very true. . .

Actually the possibility of doing the strip in a 7 was raised by one of our judges at a seminar. At that time there had been one case out of NY that said you could do it. That case was not a published opinion. Several months later a 2nd case came out of the same NY district. It was published and said you can't do the strip in a 7. A month later a 3rd case in the same district came out and cited to the published opinion. I filed the adversary in our case shortly thereafter and kept my fingers crossed.

The judge we had, had already signed a Chapter 7 strip judgment in another case where the lender failed to answer the complaint (not one of our cases). Our client was not really willing to fund the litigation so, yes, if an answer had been filed my boss would have had to decide if he was going to take the issue on pro bono.

Des.

first des...i will argue the point... i am correct....LOL! you are in fact rare. (and i will win this point, because i really in "real life "can write and type and be effective...so don't argue with me on this).

i'm not saying i haven't worked for excellent atty's.....i worked in the backrooms and law libraries with my nose in the books looking for that one edge for the firm...since i was a research paralegal...so i can really sink my teeth into this. (i would dig deeper than the earth's core to get just the right case law)....or rewrite an interpretation on a decision to comply with our situation....just a little twist here and there hoping opposing council would be less prepared.

your boss most likely would have taken the case to set the precedence for the firm. it would have been somewhat prestigious....for the sake of the firms rep. and quite an accomplishment. (we took a pro bono sex discrimination case just for that reason....the senior partner made it quite up there in the circuit court system as a result of that case). and, a good judge he was and is.

i would sometimes wait a year for a case or opinion to get published or not....many times at the edge of my seat!

ahhhh...yes, those were the days when i use to think...LOL!!

honestly i do admire your commitment, des...and your in the inside looking out...believe me when i say, there are far and few in between. (i have blown your horn enough...although it's well deserved).

so let me have my moment of appreciation for your efforts...please. because i DO understand your devotion.

[despritfreya]

In response to. . .

"so let me have my moment of appreciation for your efforts...please. because i DO understand your devotion."

I do appreciate your comments and thank you whole heartily. But I must admit that it is my boss who has the drive. I just work here. He handled a particular case that started in 1994, went to the 9th Cir. twice and then up to the USSC where he won a reversal of the 9th Cir ruling (we did have special counsel for that part of the case). It took 15 years including additional litigation once it was remanded back down the chain to the bk ct, but he finally got paid, not from the client, from the other side. Never asked a dime from the client.

Des.