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

[cw99]

We were actually just accepted into the HAMP program for our mortgage, and with the loan modification through that, Wells Fargo still said that they were not sending us a reaffirmation agreement to sign and that all we needed to do was complete the 3 month "trial" phase and our mortgage would then automatically process for the lowered rates (adjustable to a max of 5% after 8 years).

[annb]

i did not refirm on my car was not late on any payments and they have repoedd my car is this egal

[Clabbergirl]

I believe it is - you were doing a 'retain and pay' kind of thing? You keep current on your payments, they let you drive the car without issue? My lawyer said usually they don't repo the car, but they always have that right until the debt is paid and I have the title.

[IBroke]

What I'm curious about now are these "ipso clauses" in many mortgages which trigger a default on your mortgage in case you file for BK.

I found some info that these clauses itself are unenforceable but ONLY if you actually reaffirm your mortgage.

Could anybody please enlighten me on that?

[justbroke]

This is an intersection of State non-bankruptcy law and bankruptcy law. In most States, the only way to be in default of a mortgage agreement, is to actually be in material default. Filing of bankruptcy is not material default. In those same States, the only way for a lender to sue for foreclosure in order to have the property sold through auction, is for the borrower to actually not pay the promissory note as agreed upon.

In other words, you can't foreclose on someone just because they filed bankruptcy. The person would actually needed to have stopped payments or didn't provide for other things listed int he Mortgage (security instrument). Those other things are typically things such as having hazard insurance and keeping the property taxes paid. This is why, in Florida -- for example, the little ankle biting banks (credit unions) go back to the Bankruptcy court to force a person to "abandon" the property, so the bank can file a foreclosure lawsuit under the part of the Mortgage agreement regarding "abandonment".

So, you're in Florida, and unless you have some sort of Credit Union, then you need not worry about this at all.

[justbroke]

i did not refirm on my car was not late on any payments and they have repoedd my car is this egal

Absolutely legal. For "personal property", of which a car is, you MUST reaffirm, redeem or surrender. There is no "ride through" and if you hired an attorney, the attorney should have explained that to you. Now yes, it's up to the lender to enforce this and typically it's only a few major lender who repossess even if you're current (Ford is one of them).

If you filed pro se, then I'm sorry you learned this fact the hard way.

[IBroke]

This is an intersection of State non-bankruptcy law and bankruptcy law. In most States, the only way to be in default of a mortgage agreement, is to actually be in material default. Filing of bankruptcy is not material default. In those same States, the only way for a lender to sue for foreclosure in order to have the property sold through auction, is for the borrower to actually not pay the promissory note as agreed upon.

In other words, you can't foreclose on someone just because they filed bankruptcy. The person would actually needed to have stopped payments or didn't provide for other things listed int he Mortgage (security instrument). Those other things are typically things such as having hazard insurance and keeping the property taxes paid. This is why, in Florida -- for example, the little ankle biting banks (credit unions) go back to the Bankruptcy court to force a person to "abandon" the property, so the bank can file a foreclosure lawsuit under the part of the Mortgage agreement regarding "abandonment".

So, you're in Florida, and unless you have some sort of Credit Union, then you need not worry about this at all.

Thanks, justbroke!

I was curious because on a different forum (myfico.com), somebody else mentioned that if your mortgage has a clause that puts you into default due to the BK-filing, they could even foreclose on you although you're current.
I did some research on the internet and found out that such clauses would be unenforceable IF you indicate that you intend to reaffirm AND actually do "all you can" to actually reaffirm, meaning you either reaffirm or have the judge/attorney deny your reaffirmation. Otherwise, it was stated that these "ipso-clauses" would really be enforceable.

So the question is - how does this play out in real life?

In the credit-union cases, we already figured out that in order to be foreclosed on, the bank would go back to the BK-court to force you to either abandon or, if you really want to stay, reaffirm. So you would still have a chance to actually reaffirm before they could force you to abandon.

But what happens to these "ipso clauses"? If it is indeed true that they are enforceable if you don't reaffirm, what would the legal steps be? Would you be in default after discharge (if at all) and could you cure that possible default by reaffirming after discharge just like you would in the CU-cases? Or are these clauses simply void?

I'm not even sure that we have such a clause in our mortgage but I'd love to provide some input to the other thread.

[justbroke]

The ipso-facto clause argument goes both ways and there are people who will point to recent decisions. Noting that the recent decisions were really big banks and one had to do with default credit swaps and billions of dollars.

For personal property, it's pretty much settled that the code actually lists "personal property" in 11 USC 521 as you needing to actually redeem or reaffirm and if not, then the lender can pursue repossession under the ipso-facto clause.

For real property, you will always need to look to your State underlying non-bankruptcy law. Foreclosures are a State issue, not a bankruptcy court issue. Almost everything related to how to deal with property, in a Bankruptcy, is a combination of the State laws and the federal laws. I guess I'm saying that the answer is not so simple as are "ipso-facto" clauses enforceable, because the real answer is... it depends -- on the State. I know that in Florida, creditors have needed to go back to the Bankruptcy Court to force "abandonment" on properties where the debtor has stayed and paid.

I have not read one case yet where there is a mortgage, that a person who stayed and paid consistently, on-time, with no issues with property taxes or hazard insurance, were foreclosed upon.

[IBroke]

Thanks again!

So it really is a State-issue and the sole existence of an ipso-facto doesn't necessarily mean it can be enforced.
That's actually what I suspected. The statement the other member made ("if there is such a clause, they can forcelose") appeared a bit too general to me. Turns out that was true.

Thanks again, justbroke!

[annb]

i did not refirm on my car was not late on any payments and they have repoedd my car is this egal

my lawyer said not to reaffirm so i did not car was repoed call the lawyer explained to them i did what they said they did work to get my car back said the new law is you now have to reaffirm on cars i was not behind at all so the bank gave me back my car and i will sign a reffirm to keep it

[despritfreya]

my lawyer said not to reaffirm so i did not car was repoed call the lawyer explained to them i did what they said they did work to get my car back said the new law is you now have to reaffirm on cars i was not behind at all so the bank gave me back my car and i will sign a reffirm to keep it

Glad they got the car back for you but. . . there is nothing "new" about the law. The "new" law took effect October 17, 2005.

Des.

[ColoFiler]

Thanks, Despritfreya, for all the insights in this post.

I want to be really sure of something. I am in Colo (which I believe is a deficiency state). My Chap 7 was discharged last June ;)

I did NOT sign a reaffirmation on either the first mortgage or the home equity second mortgage. Now, I need to do a payment modification on the Home Equity Loan and the lender has sent me the application. What I want to be sure of is that by doing a modification now, I will NOT in any way be reaffirming the debt.

Your thoughts would be appreciated.

Colofiler

[despritfreya]

I did NOT sign a reaffirmation on either the first mortgage or the home equity second mortgage. Now, I need to do a payment modification on the Home Equity Loan and the lender has sent me the application. What I want to be sure of is that by doing a modification now, I will NOT in any way be reaffirming the debt.

This is a valid concern and, to date, I have not seen any case law. There are two schools of thought:

1. Signing a loan modification is not going to take the debt out of the protection of the Discharge since it just is not a Reaffirmation Agreement.

But . .

2. Signing a loan modification could be deemed "new consideration" thus creating a new debt that is not subject to the Discharge.

It is a risk and I simply do not know how to advise. What I can tell you is that the loan mods I have seen have very specific language in them that the creditor, upon default, will only look to the collateral. Further, these documents make reference to the bk and the fact that the debt was discharged. If you can find such language in the documents you were given by the lender that should give you some confidence that you will not be, shall we say, stuck, if down the road you cannot afford to pay for the home.

Hope this helps and best regards.

Des.

[yellowstone]

We have also been offered a modification of a mortgage that was discharged. my recollection of the docs was that we would be fully liable (recourse) for the principal balance which is now way over the value of the property. So we have said no, not wanting to be saddled with an upside down loan. I will have to take another look at the loan docs to see if it is non-recourse like you suggest.

[justbroke]

That would be a "back door" reaffirmation and is 100% illegal. I would have shown those docs to my attorney immediately.