To Pay or Not To Pay; That is the Question.

[Furlin]

Wife and I have paid our mortgage for a number of years now after 7 discharge. Now trying to pay down and refi the original loan that was not reaffirmed during BK proceeding. Bank says we cannot do so because loan was not reaffirmed. Loan was in wife's name only. So, I then applied solely for a refi or new loan. After taking my issue to the "highest underwriting" in the bank structure (a top 5 bank in the US), the loan officer tells me that, even though I was not on the first loan, I am turned down. This being because the bank would not be able to enforce the new lien because of the first loan not being reaffirmed. My question is this: Since the bank cannot enforce their lien---the first because of the bankruptcy and the proposed second one because of the first, what enforcement would they have if I simply cease paying the old mortgage? I recently noticed on our monthly billing that the bank states that "this is not an effort to collect a debt", etc., etc.

[BobMango]

Since the loan was not reaffirmed, the bank's only recourse if you stop paying would be to foreclose. I know many folks have gotten modifications after filing without reaffirming, so it sounds like your bank just wants to play hardball. Really it would likely be in their best interest to modify, but as we have seen many times, banks have their own logic on these matters.

What the bank is telling you does not make sense anyway. If you were to take a new loan the original mortgage in your wife's name would be paid off and a new mortgage would get issued to you. I don't see any way that the lack of reaffirmation would play a part.

If the property is underwater your best option may be to walk away. If you stop paying you can save a significant amount of cash before they force you to move. If it's close to break even it may be worth it to stay if you can afford the payments, as the real estate market appears to be recovering, depending of course on where you are. Since the loan (and the title I assume ) was only in your wife's name, you may be able to purchase a different home if you can qualify on your income alone.

I had a foreclosure on a rental and bankruptcy shortly thereafter and was able to keep my principal residence, convert it to rental property, and purchase a new home -- just over three years from the foreclosure sale. Good luck.

[Furlin]

Thanks, BobMango, for your prompt reply. However, my name IS on the Deed and the Deed of Trust. How could that fact effect my application for a loan in my name only at another lender? We are wishing to pay two-thirds or more of the current outstanding balance off and finance about one-third. The outstanding balance is probably about 3 or 4% above the actual sale value; and we would just as soon stay in our current home.

[keepmine]

If you're going to write a check for 2/3's of the balance, just do it and then, approach another bank about refing the remaining balance.

[Furlin]

keepmine, The only reason we would hesitate to pay against out present loan is that we would still have the current interest rate and payment. Any thoughts?

[keepmine]

keepmine, The only reason we would hesitate to pay against out present loan is that we would still have the current interest rate and payment. Any thoughts?

Same as before. There are a million lenders out there. Assuming your income and credit score qualifies you for the financing, eventually somebody will say yes.

[LadyInTheRed]

This being because the bank would not be able to enforce the new lien because of the first loan not being reaffirmed.

That person is lying or does not know what they are talking about. They can enforce their lien by foreclosing. The lien would also have to be paid off in a refi, by the definition of a refi. The lack of reaffirmation has nothing to do with the lien, only the lender's ability to pursue you after foreclosure if there is a deficiency.

My first thought after reading your initial post was that you need to try a different lender. But, with the additional info that you are going to payoff 2/3 of the loan, I agree with keepmine: Make the payment and then refi. But, if you are that uncomfortable with the thought of possibly being stuck with your current loan, you could approach a lender in advance and tell them your intention to pay down the loan. You could pay the cash into escrow and make the payment on the existing loan contingent on the funding of the new loan.