Be careful of Loan Mods after being discharged. Sneaky wording in documents

[Inca]

Decided to post more of an in depth post about my loan mod situation. I was discharged from chapter 7 last year, home was included and I never reaffirmed my loan. Well recently I just did the trial payment for a modification and I was approved (never signed any paperwork.) I was sent documents and I scrutinized every word.. and I did not like what I saw. I called bank of america and as usual got the run around and no one knew anything, 5 people said it would reaffirm, another 5 said it wouldn't, but all said they were not attorneys so they could not answer 100 percent. Anyhow, here are items from the documents that made me decide against signing the modification. They wanted me to sign these papers with a notary present. Good thing I read them over. Soo... if you decided to get a modification after you have been discharged, make sure to read every word carefully.. My documents turned out to be about 15 pages of legal mumbo jumo, not some 1 page mod documents some of you have gotten.

The items below are what made me second guess signing this documents... what do you guys interpret it as saying?


H. I was discharged in a Chapter 7 Bankruptcy proceeding subsequent to the execution of the
Loan Documents. Based on this representation, Lender agrees that I will not have personal
liability on the debt pursuant to this Agreement.


That sounds good doesn't it? But... it gets better..


4. Additional Agreements. I agree to the following:

B. That this Agreement shall supersede the terms of any modification, forbearance, trial period
plan or workout plan that I previously entered into with Lender.


E. That the Loan Documents as modified by this Agreement are duly valid, binding agreements,
enforceable in accordance with their terms and are hereby reaffirmed.

F. That all terms and provisions of the Loan Documents, except as expressly modified by this
Agreement, remain in full force and effect; nothing in this Agreement shall be understood or
construed to be a satisfaction or release in whole or in part of the obligations contained in the
Loan Documents; and that except as otherwise specifically provided in, and as expressly
modified by, this Agreement, the Lender and I will be bound by, and will comply with, all of the
terms and conditions of the Loan Documents.

G. That, as of the Modification Effective Date, notwithstanding any other provision of the Loan
Documents, I agree as follows: If all or any part of the Property or any interest in it is sold or
transferred without Lender’s prior written consent, Lender may, at its option, require
immediate payment in full of all sums secured by the Mortgage. However, Lender shall not
exercise this option if state or federal law, rules or regulations prohibit the exercise of such
option as of the date of such sale or transfer. If Lender exercises this option, Lender shall
give me notice of acceleration. The notice shall provide a period of not less than 30 days
from the date the notice is delivered or mailed within which I must pay all sums secured by the
Mortgage. If I fail to pay these sums prior to the expiration of this period, Lender may invoke
any remedies permitted by the Mortgage without further notice or demand on me.

I. That, as of the Modification Effective Date, if any provision in the Note or in any addendum or
amendment to the Note allowed for the assessment of a penalty for full or partial prepayment
of the Note, such provision is null and void.

[HHM]

Actually, I don't see anything particularly troublesome.

[nodebtnomore]

I would not have signed that. No way. I'm getting the same treatment right now from Wells Fargo on a short sale. Sneaky verbiage throughout the agreements. Can't even get someone on the phone to tell them we won't sign it.

So what happens... on closing day when the unfortunate buyers waiting with their packed moving truck come in and we won't sign these docs. I hate these banks.

[Inca]

What about letter E.) that states...


E. That the Loan Documents as modified by this Agreement are duly valid, binding agreements,
enforceable in accordance with their terms and are hereby reaffirmed.


Doesn't that sound a bit like they are trying to reaffirm the loan, especially with the word "Reaffirmed" in it, and rebinding me to the original contract?

This also seems to be a bit worry some..

F. That all terms and provisions of the Loan Documents, except as expressly modified by this
Agreement, remain in full force and effect; nothing in this Agreement shall be understood or
construed to be a satisfaction or release in whole or in part of the obligations contained in the
Loan Documents; and that except as otherwise specifically provided in, and as expressly
modified by, this Agreement, the Lender and I will be bound by, and will comply with, all of the
terms and conditions of the Loan Documents.


Because proceeding it is a statement saying "additional agreements, I agree to the following..." this this comes after it. Sounds like it is rebinding me to the original loan document...

It just seems like the wording can be taken to mean a lot of different things, and the better attorney can twist it to say anything they want... It just sounds fishy to me.

There is nothing that even signals a red flag that makes you think that this document will, or has the potential, to reaffirm a loan which is $70,000 in the hole? Also, the mod only dropped my payments by $70, but if I could keep the home with out reaffirming the loan then I would like to do so, I will be pretty much renting and not have to move out. But I will not sign a contract making me liable for a home that is $70,000 in the hole. Even my bankruptcy attorney said that some of the wording is very obscure... but I would have to pay her some more big bucks for her to take legally take liability for legal advice on this document in case she needed to dispute these documents in a court of law.. Don't have big bucks for that, but without paying her the money she is stating it sounds fishy.

[Sweetpea3829]

In my own experience...and correct me if I'm wrong...but the absolute only way to reaffirm a discharged mortgage is to reopen the bankruptcy. Or refinance the loan. But a modification is NOT a refinance. I don't think the bank would have a case if they tried to hold you to the loan.

[Inca]

I thought that was the case too, but I have read here in there that if you sign a contract after the discharge then you may be signing back into the mortgage and are going to be held liable for the "Modified Terms" of the new loan. I really don't know though.. but I do not even want to put my foot into something that "May" put me back into a position where I will be liable for the home for which I am not liable for currently. Even the attorney and 10 people at bank of america don't know... and they can't "Contact" the people who wrote the documents or any of there attorneys to say whether or not this is the case. But just reading the way they worded everything in the above posts is very peculiar.

[justbroke]

There is no such thing as a back-door reaffirmation. There is no way you can reaffirm the debt after discharge. That entire paragraph would be un-enforceable and is what they call "void ab initio" (void from the start). Furthermore, if they tried to actually collect on the debt and use any process or other means to collect, then you go right back into the Bankruptcy court, re-open your case, and file contempt charges (violation of permanent discharge injunction).

I'm sure a judge would LOVE to hear a case like that.

1. A modification is not a refinance.
2. Only "new consideration" would be considered new debt.
3. Merely changing the interest rate or principal balance, is not "new consideration"
4. For it to be "new consideration", something called "novation" had to occurred. For novation to occur, the old obligation must be extinguished and replaced with a "new" obligation!
   

[Inca]

Huh...... sounds interesting. But I am trying to avoid even going that direction. I don't want to get dragged down into having to hire another attorney (big money) and taking the case to court (big waste of time)... when bank of america tries to come after me for something that I don't owe, if I do ever have to leave the house after I theoretically sign the modification documents. How can I be absolutely sure that if I sign these documents I will still be free and clear of owing any deficiency after the house has been sold in a foreclosure.

But that entire paragraph does make it sound like they are trying to hold be liable for the original loan documents, does it not? How else can section E.) or F.) be interpreted? It states what it states pretty clearly. I have read about other people get a 1 page document they need to sign that clearly states they will not be liable for the loan. But mine is anything but clear. It states something like that in the beginning, but then goes onto stating that I "Also" agree to these other conditions, which are stated above.


Let me ask you this.. if you were me, and you were upside down by $70,000 in the home, would you sign the documents above? Rental homes will pretty much be around the same price as I will be paying once the loan is modified, for the same kind of home in the same area. The only thing that would be nice about keeping the home is not looking around for a rental, and having to move all my crap and have my kids possibly go to a new school. Figure I could rent for about 3 years and then look for a home once again.

[justbroke]

Doesn't matter what it states. There is only ONE approved format for a reaffirmation agreement. It is spelled out in excruciating detail in the Bankruptcy laws (11 USC). Additionally, a reaffirmation agreement must be signed by the debtor and debtor's attorney if represented. If the debtor isn't represented, or the attorney refuses to sign or marks it as a hardship, then it goes to the Judge.

I would sign this only for the fun I could have later. Sure, it will probably cause stress if you were to sign it and the creditor later decides to "attempt" to collect the debt. You are right to think about renting though. If you really want to be in a new mortgage (new home) in 3 years, you need to dump that property now. Tough position to be in.

[Sweetpea3829]

We had our bk7 discharged in 2007...it's a long story but to keep it short, there were two rental properties...one we lived in and one we did not live in. The one we did not was causing massive difficulties and because of those difficulties, we lost the property...to rid our primary home of the foreclosure lien, we filed the bk7.

We were mortified. We had NEVER been late on a payment and the only thing that we were in trouble with was the second property. So we made it very clear to the bankruptcy attorney that we were using that we wanted ONLY the debt related to that second property to be gone...we would retain responsibility for everything else.

Nobody mentioned anything about reaffirmation. We were told that everything would need to be discharged but that we could still keep the home we were living in (and renting out the two additional units in that home). We *thought* we were still on the hook for that mortgage...the mortgage for the first home. We *thought* our continued on-time payments would help our credit score.

Fast forward to summer of 2009 and we attempted to cash in on the Cash for Clunkers deal, figuring our credit was sufficiently rebuilt that we could get a loan with our credit union. Afterall, I could easily document that the bankruptcy was not a result of our own financical mismanagement, it was a one-time issue and afterall, our mortgage for our primary home had never been late before, during or after the bk. Just check the credit report.

Imagine my shock when I learned that the mortgage was not reporting as paid on time but rather discharged. My shock grew to furious anger when I learned that the loan had been discharged and that it would continue to report as discharged for the life of the loan plus ten years to fall off as a negative. I was SO ANGRY with our attorney. There were other reasons and other mistakes he made, but to me...this took the cake. I could NEVER rebuild our credit. And it didn't matter what people told me on how it was a good thing that we hadn't reaffirmed...in my mind, we would never be able to leave that house, it was over 100k underwater, less than half the value of what we owed and forget renting...we have four young children, who in their right minds would rent to us?

So I hired a new attorney. And we learned that the only way to get the loan to report correctly was to reaffirm it...and the ONLY way to do that was to reopen the bankruptcy. Refinancing will "reaffirm" the loan but on a note that's so far upside down...forget it...there's no way we could get it refinanced. So we set out to reaffirm.

Luckily...some things changed between our first call to the new attorney and the end of this story. I ended up canceling the reaffirmation at the last minute.

If it were me...I would not be concerned with signing those documents. The documents do clearly state that you won't be held liable for the mortgage due to the bankruptcy. I think the rest of it is just legalese and wouldn't hold in a court if they tried to come after you afterwards.

It all boils down to how much you want to keep the house? Depending on your market, 70k may or may not be really underwater. In our market here in RI...we would have been upset at a 70k upside down mortgage but our market does tend to fluctuate quite a bit so it wouldn't have concerned us. Now...when our home dropped in value from 300k to 150k (and it's got even further to go...the house across the street is very similar to ours and is on the market at short sale for 89k)...that's when we started to look at each other and say, "this is never going to bounce back...not that much."

good luck in your decision!