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

[dneil]

Okay, so I did not affirm the debt on my mortgage prior to discharge. I was interested in doing the harp refinance. As far as Bank of America is concerned, this is not possible because I included the mortgage in bankruptcy. However, I called fannie mae and they said there is no reason that I should be told that I can not refinance under harp. Of course I can go with another lender which I am in the process of doing, but it sucks that BOA is so unwilling to work with me. I have never been late or missed a payment. And of course they had told me that I qualified and they did the credit check and then told me my rate would be 4.625 (from 6.25) and then after explaining that I would pay about 1700 in closing costs and didn't have to do an appraisal, the guy said he couldn't pull the mortgage over to refinance it. Bummer... cause they already did a hard hit on my credit.

I also found out if I allowed them to do a HAMP that it doesn't put you back on the hook, and you can get your rate reduced this way.

What a day in the paradise of bankruptcy.... one year and 7 months out. Life isn't bad but it sure is a lot different considering the ways that insurance companies get ya and then the different ways that banks will treat you. I did find another servicer who is willing to take a look at our mortgage and if everything I have told them checks out to be true then they believe they can get it refinanced. They just refinanced a friend who went through bankruptcy and was discharged a few months prior to myself. I guess we will see what happens.

[Smiley26]

I am in the process of filing chapter 7 bk and was informed by my attorney that if I wanted to stay in my house i would need to reaffirm the loan because by filing bk, it would automatically trigger a default on loan. That default will give my lender (us bank) the right to foreclose even if I am current. Is this true? Has this ever happened to anyone?

[LadyInTheRed]

I am in the process of filing chapter 7 bk and was informed by my attorney that if I wanted to stay in my house i would need to reaffirm the loan because by filing bk, it would automatically trigger a default on loan. That default will give my lender (us bank) the right to foreclose even if I am current. Is this true? Has this ever happened to anyone?

It is possible that the lender could foreclose if the terms of the loan include BK as an event of default and your state laws allow such a provision. If they really do have a right to foreclose, then the question is whether they actually would and whether you are willing to take the risk. Have you consulted with any other attorneys to get other opinions?

Do you have any equity in the home?

[despritfreya]

I am in the process of filing chapter 7 bk and was informed by my attorney that if I wanted to stay in my house i would need to reaffirm the loan because by filing bk, it would automatically trigger a default on loan. That default will give my lender (us bank) the right to foreclose even if I am current.

Georgia is in the 11th Circuit. The 11th Circuit has an extremely minority view that, if pushed, you must reaffirm. Stay & Pay is not an option HOWEVER, the cases that I have read indicate that the requirement to reaffirm only becomes an issue if the lender demands it. If Georgia, like Florida, is a recourse state, my opinion is do not reaffirm unless the lender demands it. In today's economy it is highly unlikely that the lender will foreclose especially if payments have always been current. If Georgia is a non-recourse state then I suppose reaffirming does not really matter - unless, at some point, the law changes.

Find out if Georgia is or is not a recourse state. With your attny, make an informed, intelligent decision as to the likelihood that 1) if not reaffirmed there will be a problem (should not be any if the lender doesn’t bother to send the agreement but if it does and you do not sign. . .); 2) if you go through the motions to reaffirm, will the Judge deny approval of the agreement and will such denial protect you from the 11th Circuit minority opinion.

Des.

[Smiley26]

It is possible that the lender could foreclose if the terms of the loan include BK as an event of default and your state laws allow such a provision. If they really do have a right to foreclose, then the question is whether they actually would and whether you are willing to take the risk. Have you consulted with any other attorneys to get other opinions?

Do you have any equity in the home?

No I haven't consulted with any other attorney besides him and his partner. My house is over 100k negative equity. I recently received a HAMP modification so now my more mortgage is affordable. I want to stay in house but. With so much negative equity I am Undecided on reaffirming.

[Smiley26]

Georgia is in the 11th Circuit. The 11th Circuit has an extremely minority view that, if pushed, you must reaffirm. Stay & Pay is not an option HOWEVER, the cases that I have read indicate that the requirement to reaffirm only becomes an issue if the lender demands it. If Georgia, like Florida, is a recourse state, my opinion is do not reaffirm unless the lender demands it. In today's economy it is highly unlikely that the lender will foreclose especially if payments have always been current. If Georgia is a non-recourse state then I suppose reaffirming does not really matter - unless, at some point, the law changes.

Find out if Georgia is or is not a recourse state. With your attny, make an informed, intelligent decision as to the likelihood that 1) if not reaffirmed there will be a problem (should not be any if the lender doesn’t bother to send the agreement but if it does and you do not sign. . .); 2) if you go through the motions to reaffirm, will the Judge deny approval of the agreement and will such denial protect you from the 11th Circuit minority opinion.

Des.

Des, Georgia is a recourse state. :-(. And I have been late several times due to changing jobs. Do you know if US bank is big on pushing reaffirmation agreements?

[despritfreya]

Georgia is a recourse state. And I have been late several times due to changing jobs. Do you know if US bank is big on pushing reaffirmation agreements?

No, I do not know since reaffirming is not an issue for any of my clients. To me, if there is a concern over ability to pay in the future and signing a reaff creates a risk of future liability, it is a no-brainer - you don't sign and take a chance that the lender will insist and then exercise the right to foreclose even if payments are current. Best thing to do is have a sit down with your attny and weigh the pros and cons.

Des.

[IBroke]

Hi Des, great to see you here around!

I have a question about reaffirming as well:

My mother is planning on filing CH7 in Florida. We want to strip the second mortgage (totally unsecured).

Do you know by any chance if it makes a difference if the first mortgage is reaffirmed or discharged in a CH7 in regards to the Garner-St. Germain Depository Institutions Regulation Act from 1982 which would allow me to take over my mother's mortgage (God forbid - if something happens to her) since I'm living in that house as well? Could I take over a discharged mortgage as well and if so, what about the personal liability of the debt? When this Act applies, depends my liability on the questions "discharged or reaffirmed?" or will I be personally liable/not liable for that debt, no matter what?

For us, keeping the house has top priority and we would also reaffirm the first if necessary. In fact, we would want to reaffirm if that would assure that we can't lose the home under any circumstances as long as we continue our timely payments. Although we owe more than the value, the monthly payment is extremely low (HAMP with forbearance). And if the second mortgage will be stripped, there will be equity again some day.

So, let's say we would indicate at filing that my mother intends to reaffirm but in the end, there will be no reaffirmation either to the fact that the judge rejects or the lender ignores, could we still lose our house one day since it's not reaffirmed? Do we lose any other rights by not reaffirming (in Florida, you have the right to cure any defaults prior to a foreclosure on a regular mortgage - but on a discharged mortgage? I read some horror-stories that a lender can foreclose a mortgage when it's not reaffirmed and a single day late etc.)?

We have an appointment with a local attorney next week and I want to be prepared.

Thanks in advance, Des!

[despritfreya]

IBroke, good to “see” you too.

Unfortunately I know nothing about the Act you speak of. Remember, the debt is not gone - only the ability to collect from mom would be if not reaffirmed. I started to type that my gut says the debt must be reaffirmed but I erased it as, I just don’t know. Your mom certainly would not lose any right to reinstate the loan to stop a foreclosure (but for that pesky case that says you cant “stay and pay” - which I think only applies if the lender insists). I am not even sure a local attny can answer your question as it relates to the Act. Quite frankly, but for your post, I have never heard of it.

Sorry that I am useless in this matter.

Des.

[IBroke]

IBroke, good to “see” you too.

Unfortunately I know nothing about the Act you speak of. Remember, the debt is not gone - only the ability to collect from mom would be if not reaffirmed. I started to type that my gut says the debt must be reaffirmed but I erased it as, I just don’t know. Your mom certainly would not lose any right to reinstate the loan to stop a foreclosure (but for that pesky case that says you cant “stay and pay” - which I think only applies if the lender insists). I am not even sure a local attny can answer your question as it relates to the Act. Quite frankly, but for your post, I have never heard of it.

Sorry that I am useless in this matter.

Des.

Thanks, Des!

Hey, you're NEVER useless!!

We certainly wouldn't mind reaffirming if that's what it takes to make 100% sure that we can keep the house while making payments on time. I just wanted to make sure that our intention to reaffirm would already be enough to secure the house even if the judge would disallow or the lender wouldn't finalize the reaffirmation. I mean, as a borrower, my mother would have done everything she can to reaffirm but but in the end, she can't influence what the judge decides or the lender does. It would be strange to lose a home due to non-reaffirmation if a judge or lender would be to blame that there was no reaffirmation in the first place.

As far as the Act goes, it's basically the regulation that a close relative can take over a mortgage as long as he/she is living in that property. As you know, many mortgages have a "due on sale"-clause that would be triggered if the borrower dies. However, after this act was introduced, these clauses were void if a close family-member (husband/wife, child) living in that property would continue making timely payments. That's why I was curious if it made a difference in regards to this act if the mortgage was reaffirmed or not. If it was indeed reaffirmed, I'm sure the act would apply - I'm just not sure what happens on a discharged mortgage. I would assume the act applies as well - but what I do not know is what's going to happen to the personal liability. The lien would certainly stay under any circumstances.

http://www.ehow.com/info_7743647_hap...ower-dies.html

"In 1982, the Garner-St. Germain Depository Institutions Regulation Act included provisions that prohibited lenders from exercising the due-on-sale clause under a several circumstances. These include transfers to a spouse or child who will live in the residence, to a surviving joint tenant or to a spouse or child in a court-ordered divorce settlement. The debt is still tied to the property, but the new owners in these circumstances are allowed to assume the mortgage."

[despritfreya]

"In 1982, the Garner-St. Germain Depository Institutions Regulation Act included provisions that prohibited lenders from exercising the due-on-sale clause under a several circumstances. These include transfers to a spouse or child who will live in the residence, to a surviving joint tenant or to a spouse or child in a court-ordered divorce settlement. The debt is still tied to the property, but the new owners in these circumstances are allowed to assume the mortgage."

Very interesting. I guess I never heard of it because, in Arizona, due on sale clauses are not enforceable. See In re Garcia, 276 B.R. 627 (Bankr. Ariz., 2002) at Footnote 11. Interestingly, while I never noticed it before, Judge Haines refers to the Act you speak of in the Footnote. I should have been more diligent in my review of this case as it is cited quite frequently.

Des.

[2muchinDebt]

We are over 2 yrs discharged, We did not reaffirm. We did a HAMP loan mod right before filing CH7. and have always been on time with payments. We had a HELOC for $47K that was "looming" out there because it wasn't included in the CH7, but on Friday we got a UPS overnight envelope from Chase saying they were forgiving the HELOC and releasing the lien!! Sooo glad we didn't reaffirm and we have 3.25% fixed interest rate. Now if they just reduce the principal by about $50K we'll be even on what we owe and it's worth.

So once we get to the break even point or there's a little equity..Chase can't take the house back from us can they even though we are always on time with payments.

[justbroke]

IBroke, you are lucky. Some Judges in the Middle District of Florida (FLMB) are actually allowing Motion to Determine Secured Value and Strip Lien in Chapter 7 cases! Be aware that not all Districts in Florida seem like they'll follow the recent "unpublished ruling" in McNeal v. GMAC Mortgage, LLC, 11th Circuit, case No. 11-11352 from the 11th Circuit.

[IBroke]

IBroke, you are lucky. Some Judges in the Middle District of Florida (FLMB) are actually allowing Motion to Determine Secured Value and Strip Lien in Chapter 7 cases! Be aware that not all Districts in Florida seem like they'll follow the recent "unpublished ruling" in McNeal v. GMAC Mortgage, LLC, 11th Circuit, case No. 11-11352 from the 11th Circuit.

Cool - thanks for letting me know, justbroke!

Tomorrow evening, we have our initial consultation scheduled with a local attorney. I'll keep you guys updated where we will go from there..

BTW, the attorney we will see tomorrow has EXACTLY the same link you just provided posted on his website so that gives me some confidence that he should at least be aware of what I'm talking about when I'm asking about lien stripping in a CH7....

[markabne2318]

hello there des!

i can recommend to you a website that might help you with your bankruptcy problems. it has complete information regarding with your bankruptcy law needs and questions. they also give suggestions. here is the URL of the site <site address deleted by moderator> -- just check there site.

i hope this will help.

Regards,

Mark