What happens if we surrender the house but go on paying and living in it?

[kellysmum]

Our BK attorney told us that, given the state of our monthly expenses, there is no way that Wells Fargo will let us reaffirm the house. He told us that we should surrender it BUT go on living in it and paying the mortgage on time and that Wells Fargo won't kick us out and will go on accepting payments. He said they would rather have someone in the house and paying than have it empty and no payment. He said the mortgage would just no longer be on my husband's credit record. I gather we lose all equity (which is negative, anyway) in the house? The house is worth about 80k and we still owe 108,000. We live in Ohio. Can someone please advise? Thank you.

[gregemm]

Everything I have seen says reaffirming a mortgage is a bad idea anyway - yes the bank will continue to accept your payments and as long as they are getting them, they won't do anything. You may or may not keep getting statements from them (I do but they are clearly marked that they are for information only). Primary reason for not reaffirming is that if you do and something happens in the future you legally owe the bank, where without it if you needed to you could always walk away in the future, no obligation to the bank

[ValleYum]

Our BK attorney told us that, given the state of our monthly expenses, there is no way that Wells Fargo will let us reaffirm the house. He told us that we should surrender it BUT go on living in it and paying the mortgage on time and that Wells Fargo won't kick us out and will go on accepting payments. He said they would rather have someone in the house and paying than have it empty and no payment. He said the mortgage would just no longer be on my husband's credit record. I gather we lose all equity (which is negative, anyway) in the house? The house is worth about 80k and we still owe 108,000. We live in Ohio. Can someone please advise? Thank you.

Why would your attorney check surrender if you are going to "stay and pay"? In some areas, checking the surrender box can cause issues with claiming the mortgage expense or entice the trustee to list your home for sale.

There is an other box on the SOI he could check.

[justbroke]

I did exactly as ValleYum suggests. On my Statement of Intentions I selected "Other" and typed in "Retain and Pay". Since the creditor did not object to that, I was able to stay and pay. (In the 11th Circuit -- Florida, Georgia and Alabama -- we technically can only surrender, reaffirm or redeem... they is no "stay and pay" option. However, it is up to the creditor to complain about it, and most do not. It seems that only the "ankle biters" -- small banks/credit unions -- complain about not selecting one of the real 3 options.)

You would not lose any equity in the home unless the "market" determines that it is not worth as much as you believe. You can never tell with banks what they will do because some of the banks are actually insured when it comes to foreclosures and losses (mortgage insurance).

I would have listed it as "Other" with "Retain and Pay" especially in the case where you actually have equity. I do not think any bank, except maybe an ankle-biter, would fuss about that if you are paying!

[alo]

Fast forward 15 years and let's say you are still in the "stay and pay" property. Paid the mortgage, insurance and taxes the whole time and now what? If you wanted to move, would you sell it? Is it yours to sell? And any equity...yours?
Or, what if during that time, you pay off the mortgage. Do you now own it?

[keepsmiling]

Yes, everything should remain the same, at least as far as everyone's best guess has been.
Remember that the bank still has a lien on the property even if the mortgage has been discharged. So you do have to pay or risk eventual foreclosure.
I would imagine that the chance does exist--- given the right circumstances of another bubble- that the bank could, in theory, take the house back.
It's too soon for anything like that to have been reported.

[justbroke]

Fast forward 15 years and let's say you are still in the "stay and pay" property. Paid the mortgage, insurance and taxes the whole time and now what? If you wanted to move, would you sell it? Is it yours to sell? And any equity...yours?
Or, what if during that time, you pay off the mortgage. Do you now own it?

It is always yours to sell! However, you must meet the terms of the Mortgage.

A little background is probably in order. When you discharge a debt, you are actually only discharging you liability to pay. It does not remove any security interest (Mortgage) you granted on a property. The security interest is still there and you can not sell the property without satisfying the Mortgage; unless you have some agreement with the lender (e.g. a short sale).

So, given that... if you want to move and want to sell it, you need to make enough to pay the balance due plus any commissions on the sale. If you can't sell it for enough to cover those, you may need to short sell. You could also seek a deed-in-lieu with the lender to transfer ownership. You could just "walk away" and let the lender foreclose. In all those example, you would not be subject to any deficiency caused by the sale/foreclosure. You discharged that responsibility.

If you pay off the mortgage, then you "satisfy" the mortgage. You would always still own the property! Ownership doesn't change unless there is a change on the Deed/Title.

[btbeme]

Fast forward 15 years and let's say you are still in the "stay and pay" property. Paid the mortgage, insurance and taxes the whole time and now what? If you wanted to move, would you sell it? Is it yours to sell? And any equity...yours?
Or, what if during that time, you pay off the mortgage. Do you now own it?

A Ch 7 does not change the terms of the Deed, nor does it void the mortgage contract - it simply absolves you of any further obligation to pay. The mortgage contract has the terms clearly spelled out, which says that you pay X amount for Y years on z time schedule (or pay the outstanding principle and any interest accrued at any time) and the bank will withdraw its claim to the asset. It also states that if you do not pay, the bank can claim the asset. Doing one or the other fulfills the contract. That does not change in a Ch 7.

However, some banks will insist that you make a decision to abandon or reaffirm. Some districts insist on that choice as well. However, "abandoning" the property does not necessarily mean that you are agreeing to turn it over to the bank, especially if you are still fulfilling the terms of your (still valid) mortgage contract. Banks would absolutely rather not inherit yet another underwater home.

See if your attorney knows what the Trustees want - the stay and pay option is allowable in most areas. Even if it is not in your district, the stay and pay practice is usually allowed anyway.