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

[despritfreya]

. . .hello there des!i can recommend to you a website that might help you with your bankruptcy problems. . . Regards,Mark

ROFLMAO. . .

Mark, I know you are just a spammer but. . . why on this (or any other) planet would you think I need to view your website? Surely you have read some of my posts and, assuming you understand English, have figured out that I am well versed in this subject. Please go away - but thanks for the early morning laugh.

Des.

[ValleYum]

ROFLMAO. . .

Mark, I know you are just a spammer but. . . why on this (or any other) planet would you think I need to view your website? Surely you have read some of my posts and, assuming you understand English, have figured out that I am well versed in this subject. Please go away - but thanks for the early morning laugh.

Des.

I sent him to "Banned Camp" earlier, Des - but left his comment for the giggle I got reading it. Glad you got a giggle, too.

[justbroke]

Mark, I know you are just a spammer but. . . why on this (or any other) planet would you think I need to view your website? Surely you have read some of my posts and, assuming you understand English, have figured out that I am well versed in this subject. Please go away - but thanks for the early morning laugh.

It's almost like the wannabe cops that try to pull over a REAL cop!

[patrickmead]

I recommend all my clients NOT to reaffirm, just pay and keep current if they want to keep the house.

[Griffy]

I'm confused here in Texas. Just got my the filing paperwork from my BK attorney to sign and was surprised to see that he had checked off reaffirmation of both the 1st and 2nd mortgages.

I sent him an email (before finding this website) asking "Can I affirm my first mortgage but NOT my second?" His reply was: "The George Bush bankruptcy judges have held that reaffirmation agreements must be signed on secured debts - however wholly unsecured second lien creditors are not likely to take any action if you do not reaffirm."

Mortgage details:
Been paying my new HAMP on time since 9/12
New 1st is $174,880 (Chase)
2nd is $58,000 and not paid since 12/11 (SLS)
Property tax value is $175,881 (dang it)

Can't for the life of me see why my attorney wants me to reaffirm the 2nd and after reading this thread possibly the 1st. Goals: I want to stay in the house, keep risk to a minimum and improve credit where I can.

What questions should I be asking my attorney or how should I redirect him?

Thanks

[justbroke]

I don't know why he added "George Bush" judges as that's irrelevant. The law changed in 2005 and you must Reaffirm, Redeem or Surrender the property. In our Appellate Circuit (11th), it is the law of the land... that is you must choose one. However, we still have attorneys that put "stay and pay" on the petition. We even have debtors that list "reaffirm" on the petition, but they don't actually complete the reaffirmation agreement.

Attorneys are there to help guide you in the right direction. In some Districts, putting "surrender" on the Statement of Intentions (SoI) could trigger a UST audit where the UST will not let you claim the expense deduction for the mortgage, possibly leaving you with significant disposable monthly income (DMI).

What your attorney wrote is doublespeak. He's saying what I wrote in the first paragraph. He's also contradicting by saying that you really don't need to on the 2nd since most "wholly" unsecured junior lienholders don't care about reaffirmations. It's a tightrope that your attorney is trying to balance upon!

In your particular case, you actually have a partially secured 2nd. While you do not need to reaffirm (you could choose surrender), the affects of this is very specific to your UST and District. I (personally) would not reaffirm the 2nd at all. You will need to weigh this and you'd stay need to pay the 2nd. However, your are severely underwater by almost 33%. I like to think that 10% underwater is manageable, but 33% is surely not something to even reaffirm.

It's a financial decision that you must make alone. What were your intentions with the 2nd? Were you going to continue paying it? I would not reaffirm either loan in your particular case! It makes no financial sense.

[Griffy]

Thanks JostBroke for the quick reply.

I haven't paid on the 2nd for about a year and don't plan on paying the monthly amount in the future. Once I save up a bit, I would like to negotiate a settlement. (thread on LoanSafe. org by Tom Eason suggests that is possible btw 2-10%).

I definitely do NOT want to reaffirm the 2nd in any shape or form. The 1st I'm still pondering, but the only advantage I can see is that it will improve my credit if I pay timely but if I get in an unforeseen bind in the future, I'm stuck. I certainly would like to claim my expense deductions.

Just reviewed my SOI (which I guess is the petition ... not seeing an actual reaffirmation agreement). The SOI (filled out by my attorney but not signed by me yet) says

Property will be (check one):
Surrendered or Retained (checked)

If retaining the property, I intend to (check at least one):
Redeem the property
Reaffirm the debt (checked)
Other. Explain, for example, avoid lien using 11 U.S.C. Section 522(f)

So if I understand you correctly JustBroke, I should check other on the SOI and write in Stay & Pay? If there is a Reaffirmation agreement, just make sure that isn't completed?

Thanks

[justbroke]

The 1st I'm still pondering, but the only advantage I can see is that it will improve my credit if I pay timely but if I get in an unforeseen bind in the future, I'm stuck. I certainly would like to claim my expense deductions.

Never reaffirm to "improve" your credit. It almost always backfires. Your credit score should not drive a significant financial decision, such as discharging a $175K debt! No one can predict what tomorrow will bring for themselves.

So if I understand you correctly JustBroke, I should check other on the SOI and write in Stay & Pay? If there is a Reaffirmation agreement, just make sure that isn't completed?

I am not saying that. I am saying that this is strategy and it depends on how effectual "Stay and Pay" works in your particular district/appellate circuit. In Florida, I've seen both "Stay & Pay" (Other) and Reaffirm listed. In both those scenarios the debtors never actually enter into a reaffirmation agreement.

This is something you and your attorney needs to work on. Be aware that your attorney is walking a fine line and trying to show you what you are required to do (redeem, reaffirm, or surrender). The reaffirmation agreement would come from your lender after they receive your petition, read your Statement of Intentions, and determine whether they want a reaffirmation agreement.

[Griffy]

My lawyer is still being sketchy but he did give me another option for the 2nd - to Redeem since the 2nd is now only worth $1,001.38. I think I could actually come up with that amount of cash if they forced me to pay it all at once. It would be better than negotiating as $1k is only 1.73% of the loan (Tom Eason's thread on LoanSafe.org suggests to expect 2-10%).

If I go the Redeem route on the 2nd, does it force me to go a certain route on the 1st? Just asking since I'm not getting straight answers from my lawyer.

Also didn't see anywhere on the SOI documents where I needed to do a separate Reaffirm agreement; however, if the ebook "Filing for Bankruptcy in Texas Made Simple" it did say that "a reaffirm agreement must be executed before discharge".... so it concerns me to check off Reaffirm on the SOI and then just not do the agreement.

Thanks again!

[despritfreya]

Griffy,

I was planning on staying out of this one since JB is doing just fine communicating with you but when I read the following, I just could not resist. . .

My lawyer is still being sketchy but he did give me another option for the 2nd - to Redeem since the 2nd is now only worth $1,001.38.

I want you to go back to that lawyer and ask him what provision of the bk code he thinks can be utilized to cram down (redeem) such a mortgage lien. If his answer is 11 USC 722 you better run, not walk, out of his office.

The ability to "redeem" collateral in a Chapter 7 only applies to certian personal (not real) property.

Now, if, after your case is over, you wish to try to settle with a slightly “in the money” 2nd, (Eason's strategy) that is up to you. The bk court simply has no authority to modify the rights of a lender solely secured by the debtor’s principal residence, be it a Chapter 7, 13 or 11. Only a Chapter 12 (family farmer) will allow such action.

Des.

[Griffy]

Hey Des,

You're a knight in shining armor - I'm sure some gal is very happy.

My lawyer (already paid him, so I can't run too far) finally called me back. He said he didn't know the provision off-hand but thought it was 5xx something not 722. He also said some jurisdictions allow the redemption and some don't.

What happens if we check redeem on the SOI and its not allowed ... I'm assuming I'm not going to go to BK jail

Thx Griffy

[keepsmiling]

Just saw "Banned Camp" and loving it lol... better late than never

[despritfreya]

Griffy,

If the attny mentioned “5xx something” I assume he is referring to 11 USC 521(a)(6) which requires a debtor to either surrender, reaffirm or redeem property within 45 days of the 341. But that provision specifically mentions personal, not real, property and refers one to 722 if redeeming.

It sounds like your attny is telling you that Dewsnup v. Timm, 502 U.S.410 (1992) somehow does not apply. In Dewsnup the debtor argued that she could force a cram down of the mortgage lien in the context of a Chapter 7 - in essence, get the lender to take a reduced amount based upon the equity in the property - just like what your attny is telling you - redeem the lien. USSC said “no” and I am not aware of any law passed by Congress that trumps this long standing principal. Even the 11th Circuit, which now allows lien strips of wholly unsecured second mortgages, I think would be hard pressed to allow such a cram down if there was any equity in the property after consideration of the senior liens.

Of course, I could be completely wrong and, in your district some unique rule allows one to pay a mortgage holder on real property some token payment based upon the equity and obtain a lien release. I just don’t see it. You will most likely have to negotiate a settlement outside the context of the bk.

If you check the redemption box on the SOI nothing will happen. Either the lender will seek a reaffirmation or the lender will let it go. If you are in one of the few Circuits that does not allow the “stay and pay” approach and the lender insists on a reaffirmation agreement you will have to decide if you really want to move in that direction and re-obligate yourself to the entire debt. The reality however is, unless you work it out with the lender (settle the lien) at some point the lender may exercise its right to foreclose. Will it do so now? Probably not since there is so little equity in the property. But, as property values increase so does the risk that the junior lien holder will try to recover some of its money.

Des.

[justbroke]

My lawyer (already paid him, so I can't run too far) finally called me back. He said he didn't know the provision off-hand but thought it was 5xx something not 722. He also said some jurisdictions allow the redemption and some don't.

What happens if we check redeem on the SOI and its not allowed ... I'm assuming I'm not going to go to BK jail

I have never seen a Redemption on real property (period). Would be nice to know just which "jurisdictions" s/he is talking about and whether YOUR district is in such jurisdiction! Ask him for some caselaw. LOL! (It would be nice if one could redeem real property... but where would the money come from???)

Nothing would happen if you checked redeem. You actually need to file a Motion to Redeem for a redemption to be taken seriously. (In other words, your Statement of Intention is nothing more than a, well, "statement" of "intention". It is not an act to actually do something.

[TRfromillino]

Ok, I have to have an answer on this tonite! I keep reading about don't reaffirm, just keep paying and staying, if i want to. Well if you don't check reaffirm, than what do you check??? I tried to push past checking the 'other' box for retaining, stay and pay, but my lawyer informed me today that this option was not for real property and was not applicable in Illinois. So once again, I'm back to only being able to check reaffirm or surrender. I read that if I surrender, that automatically lifts the stay and they can take the house after discharge. I don't want that! But I'm so confused sometimes and I feel sometimes like I know more than my lawyer. But I have to go sign the papers tomorrow and they want to know what I'm going to do. And I don't know.