Reaffirmation laws and walking away

[Sweetpea3829]

Ok...in 2007 my husband and I flushed our near perfect credit rating down the toilet when we filed a Chapter 7 bankruptcy to get rid of a second multifamily property that we had gone into default on due to three back to back evictions.

We knew that we were going to lose the house and we knew that there would be a lien placed on our home (also a multifamily) and so the Chapter 7 was our way out.

We made it abundantly clear to the attorney that we intended to keep the house we were living in and had never been late on. He never explained to us the need to reaffirm.

Fast forward to 2009. Our credit scores are back up to the low 700s and we go to apply for a vehicle loan and are declined. We weren't surprised...afterall, there's a serious collections action on there with the bankruptcy! But in pulling and reviewing the credit reports, I came to a startling realization. None of the payments I have made on time for this mortgage are showing up as paid on time. Instead, it shows up as discharged.

After making some phone calls, we discover that the loan hadn't been reaffirmed and that we wouldn't be able to refinance the loan or really do much of anything to it in it's discharged status. And moreover, it would be an anchor on our credit score until the loan was paid off, plus ten years for the negative report to fall off (that's 34 years from now).

We found an attorney who agreed it was in better interest for us to reaffirm and he starts the process of reopening the bankruptcy to have the reaffirmation signed.

It's been a solid year and he's still working on that.

In the meantime, I lost my job. Not a big deal really, but it means we are really pinching the pennies hard. I hear about the HAMP program and realize we qualify to have our payment lowered by almost 700/month! So we apply and four months later (today), we are denied on the basis that we have too much cash in our checking and savings.

We don't...the money they are seeing is for this current months' payment.

Moreover, our 3rd floor tenant just put her notice in and so that means we'll be out her $700 rent next month.

So here are my questions:

1) We're not sure if the loan has been officially reaffirmed yet. If it has, do we have recourse to renege?

2) How quickly can the lender throw us out? Our intention, if we choose to walk away, is to stay for as long as we can and save. If we can get two years, we could potentially save close to $50K. This will go A LONG way in getting us into a single family home. Which we desperately need as we raise four kids between the ages of 1-4.

3) Can we prolong the time by paying some here and there? (I know this sounds dishonest, but Citi is kind of forcing our hand...had they agreed to the loan mod that we applied for, we would have happily stayed and paid)

3) What legal recourse does Citi have to come after any funds we have saved?

4) Being as how the loan technically "doesn't exist" any longer...when we miss this month's payment, does Citi have the right to start the phone calls and certified letters?

Anything else that you can think of that would be helpful.

Please consider...we hate this house. We hate being landlords. We have 700 sq ft of living space for us six people and the dog. But...we strongly value honor and integrity and I'm not sure it's right for us not to pay when we have enough cash to do so (this month anyways). Any thoughts?

[despritfreya]

"We found an attorney who agreed it was in better interest for us to reaffirm and he starts the process of reopening the bankruptcy to have the reaffirmation signed."

Let me start by commenting about the above statement: Dumb. . . It is NEVER EVER in your better interest to reaffirm a large debt and now you know why . .

So, if I read your post correctly, and it is a bit late and I am tired, you did not listen to your very smart 1st attny but instead listend to a not so smart 2nd attny, reopened your case and either are in the process of or already have signed a reaffirmation agreement on a mortgage. You then lost your job and now want to rescind the reaffirmation agreememt or just stop the process.

Now you know why your 1st attny was right. Do you live in a recourse state? If so and you did reaffirm, if you are unable to make the mortgage payments, not only will you lose the home, your creditor will also be free to sue you for the balance of the debt, a debt that was discharged before you reaffirmed it.

You need to contact what ever attny you used to reopen your case to find out the status of the reaffirmation agreement and your options. You may not have any.

Your experience is the exact reason I never allow my clients to reaffirm a mortgage. Why on earth would anyone want to reobligate themselves to what is typically a six figure debt when all they have to do to keep the home is stay current? Personally, I consider it malpractice for any attny to allow their client to reaffirm a mortgage.

[Sweetpea3829]

We live in Rhode Island.

I wish I could say I agree with you. But I don't. We are primarily looking to walk away at this time if and only if, Citi continues to refuse to modify the loan. Should Citi agree to modify the loan after we've been in default for two months, we most certainly do want to reaffirm.

Why in the world would I want to have a derogatory mark appear on my credit report for the next 35 years? If the loan is not reaffirmed, I will NEVER be able to fully repair my credit. Many banks won't even look at your loan application if you have any kind of collection action such as a discharge on your credit file.

To have such a discharge appear for 35 years is a huge slap in the face. I take pride in my credit score and in my ability to rebuild it. Especially considering the bankruptcy was not really because of our own mishandling of funds. True, we bought this second multifamily...and had we not had three back to back evictions, accompanied with the legal fees associated with an eviction, damage to the apartments, etc., we would still have that property and actually be making money off of it.

I can attest to how this has already affected us. The Credit Union we applied with "wasn't comfortable" with approving a $5,000 vehicle loan because of the status of the house. They said it showed that we hadn't re-established our credit and despite our 700+ credit score and our ability to provide payment histories, in the end, the Credit Committee decided that they just were uncomfortable with approving any loan for us. Period.

Moreover, the large bank that I use to work for had a strict policy against approving applications for certain types of credit if the applicant had any kind of discharged or collection item on their report. It was an automatic denial. Period.

Now, we did eventually find a credit union that would approve our loan. But our interest rate is higher and we were required to have the payment directly debited from my husband's paycheck.

In addition to the above-mentioned difficulties, with the loan being discharged, we can not refinance it. From what I understand, because the loan technically "doesn't exist," we do not qualify to refinance it at the new 4.whatever interest rate (which is two percentage points lower than what we have now at 6.34). Nor could we cash out equity if and when the time ever comes that the house is worth more than we owe.

Who in their right mind would keep things that way? And this is why we sought to reaffirm.

As of right now, it's not that we CAN'T pay this debt. We still can. But...we're tired of pinching these pennies so tightly and if Citi continues to refuse to modify the loan then you can bet your bottom dollar we'll walk away. They can take the house and shove it.

For us...if things work out right, and we can stay here, prolonging the foreclosure process for the next two years, collecting rent and stocking it away...we can save up enough and get out.

Ideally...we want to keep this multifamily. It will be a source of income for us, me particularly, when we are older and retired. But it's not the end-all be-all and at 100K underwater right now, it's certainly not the greatest of investments.

Which is why we are exploring other options...including one that we otherwise wouldn't have had (just walking way scott-free).

I do intend to discuss this with our attorney. I posted here because I'm hoping to get a quicker response than he'll give me...he's just returned from vacation and I'm sure it'll be a few days before I hear from him.

And finally...for the record...our first attorney was a moron. And not just because he failed to explain to us what reaffirmation is, what it means and allow us the opportunity to make that decision for ourselves. The man showed up at our hearing with a huge, fresh mustard stain on his shirt. He wasn't fully prepared and the Trustee had to extend things in order for him to obtain the paperwork he failed to bring with him.

It was a nightmare experience for sure. And yet...the nightmare lives on as we are STILL dealing with this mess 4 years after it began.

[SMinGA]

There seems to be some confusion... There is no way something could stay on your credit report for 35 years.

You can refinance and/or get a new mortgage after discharging the existing/old mortgage in a bankruptcy. You still own the house - its a matter of qualifying based on credit score, income, DTI, etc. same as before. But you also said you gave up the other property - so have that foreclosure. THAT is probably why you were declined for the refinance. Most lenders won't touch you for a mortgage or refi until 3+ years have passed since a foreclosure. (The FC date would be the date of sale, when the other property's title was changed out of your name.)

Credit Unions can be fickle when it comes to credit granting. Just depends on the CU and their standards. Some are very BK 'friendly' and some are very shy, especially these days, when there is any doubt as to the credit worthiness of the applicant.

The benefit of not reaffirming? You are not obligated to those payments. You can walk away, and the lender cannot pursue you for $ owed. If you stop making payments, you'll probably get notices 'for informational purposes only' and any that your state requires in the various stages of the foreclosure process.

[Sweetpea3829]

We were very confused as to the effect the discharged loan would have on our credit file. And we were never able to obtain clear answers on it. But the reporting bureaus seemed sure that the current loan, in it's current status, would show up as discharged in a Chapter 7 until the loan was paid off, plus ten years for the negative report to fall off our file.

So for example...because we continue to pay, Citimortgage continues to report that the file exists but because of it's status, they cannot report a payment history, just that it exists and has been discharged. See what I mean?

Correct me if I'm wrong on that...like I said, we never obtained satisfactory answers on that.

We were told by numerous sources (the mortgage company, our mortgage broker and the attorney) that we would NOT be able to refinance the mortgage because again, it technically no longer exists. If somebody can confirm this to be untrue, I would love to hear it as it opens other options that we have previously thought to be closed to us.

Right now...we're just looking in to any and all options. Like I stated above...we would like to keep the property as income for when we're older. But our hearts won't be broken if we walk away. Well...I speak for myself...my husband has put a LOT of his own blood, sweat and tears into remodeling this house and I know he'd feel like it was all for naught to just walk away.

Personally...I want to get my family into a house that fits our needs. 700 sq ft of living space is simply not enough for the four small kiddos and their puppy running around.

Then of course...there's that whole integrity thing...we were sick to our stomachs when we allowed the other house to foreclose. And we hung our heads in shame when we sat in that courtroom with everybody else filing bankruptcy. Remember...this was 2007...the housing market was just starting to tank and the economy was starting to get a bit green around the gills...but nobody knew just yet...just how bad it would get. Nevertheless...to walk away from another debt obligation is unsatisfactory to us.

But yet...when I cannot prepare a meal because SOMEbody is up my rear end (because there's nowhere else for them to be playing), the idea of walking away and buying a larger home is enticing.

[SMinGA]

The mortgage line will 'fall off' after 7 years. Most likely 7 years from when you filed bankruptcy. (Possibly from discharge.) A dormant line (nothing new to update/report) with any derogatory info (IIB has a derogatory mark) can't stay for more than 7 years. It should show as IIB as of x/yy date.

You no longer owe that mortgage. But you are on title with the mortgage company having a secured interest in the property. So you keep paying, when you want to keep the property. You could refinance, sell, etc. the same as usual. Perhaps you need to seek alternate opinions and not rely on one mortgage broker. That broker may specialize in grade A loans, and simply having the bankruptcy & a foreclosure on your report could take you out of the running for the products he offers.

As for the mortgage company & your attorney, they could be clueless as to whether or not you can refinance. The people I reach at my mortgage company seem hardly competent enough to teach a 5 year old how to tie their shoes, and mortgages are not the attorney's specialty. You would probably not expect a pastor, gardener, or truck driver to give expert advice on mortgages. I would not expect it from an atty either.

I could not imagine living in such small quarters. Our home is not huge by any standard - about 1600 sq feet finished and a basement for additional unfinished space (laundry, storage, someday another bedroom & bathroom?). Could not imagine cutting that in half and not going crazy!

[Sweetpea3829]

SM...trust me when I tell you...we are going crazy! LOL, but...we are learning to be content in whatsover state we find ourselves. We are making do with what we have. We are fortunate to have a nice yard, one of just a small handful on our street as the neighborhood is more of a tough area than we had intended on raising our kiddos. And having a small space does have it's bennies...I tell ya...just last week I needed to get the whole house cleaned in expectation of a visit from my mom. It only took me a single day to do a thorough cleaning from top to bottom! Yay for small spaces.

That said...we really want out. LOL...we hate being landlords and paying other people's bills and making it but just barely and having to take things off our kids' Christmas wish lists. You know the routine.

But...on the flip side...it would really go a long way towards helping our retirement plans if we do keep this house (whether we live in it or not).

I'll be hopefully speaking with our attorney today. I'm going to ask him to delay the reaffirmation (if it can be delayed). In two months, we will attempt to modify the loan with Citi again (and from your description of your mortgage company, I wouldn't be shocked if yours was also Citi...what a bunch of morons over there). During that time, we will allow the loan to go into default *gulp*. We will save the money in preparation to walk away. If they still refuse to modify...then buhbye. Otherwise, we'll modify, pay back the missed payments and continue as planned.

[SMinGA]

We actually have Bank of America - but they probably all get their c/service employees from the same pool!

Good luck on the mod. I did complete an inhouse mod w/ BofA - compared to all I've seen of others mod stories ours was very basic and simple. I specifically asked for inhouse, knew we did not qualify for HAMP and did not want that red tape.

[despritfreya]

Only one comment to the following quote then I will leave this issue alone:

"As of right now, it's not that we CAN'T pay this debt. We still can. But...we're tired
of pinching these pennies so tightly and if Citi continues to refuse to modify the loan
then you can bet your bottom dollar we'll walk away. They can take the house and shove it."

If you reaffirm (and I do not know if RI is a non recourse state or even if it is, if a multi-family home qualifies), and then walk away it will be you who, as you say, will be "shoving it". Your lender will foreclose and sue you to its heart's content. Not a good thing in my legal opinion. But. . . that is only one person's opinion.

Best of luck in what ever you decide.

[mgmadara]

We were told by numerous sources (the mortgage company, our mortgage broker and the attorney) that we would NOT be able to refinance the mortgage because again, it technically no longer exists. If somebody can confirm this to be untrue, I would love to hear it as it opens other options that we have previously thought to be closed to us.

I can confirm that this is untrue. We declared bankruptcy in Aug 2005 and didn't reaffirm our mortgage. Our interest rate is 6.4% and we have 18 years left to pay. We are currently in the process of refinancing our mortgage with the same bank. We are getting a 15 year fixed at a rate of 3.875%. Our bank requires us to be discharged for 4 years but they also have other options for people who are only 2 years passed discharge. It is my personal opinion that reaffirming a mortgage is not in the debtors best interest. Good luck to you, I hope you can get everything sorted out!

[angles]

Then of course...there's that whole integrity thing...we were sick to our stomachs when we allowed the other house to foreclose. And we hung our heads in shame when we sat in that courtroom with everybody else filing bankruptcy. Remember...this was 2007...the housing market was just starting to tank and the economy was starting to get a bit green around the gills...but nobody knew just yet...just how bad it would get. Nevertheless...to walk away from another debt obligation is unsatisfactory to us.

[keptdigging]

Although recognizing this requires logic and self interest on the part of the mortgage company (which can't be assumed)... having not reaffirmed strengthens your hand in a modification scenario. You can walk.

Conversely, had you reaffirmed they have you and Chapter 7 is no longer available to you (until your 8 years are up.)

IMHO being on the hook for the mortgage with no Ch 7 available is a much bigger deal than a line on a credit report. I don't know what remedies are available to a creditor in RI, but here in CA, it could mean wage garnishments and bank account seizures.

No question you did the right thing in the first place.

[Sweetpea3829]

Still waiting to hear from the attorney. Being as how he was on vacation last week, and based on past experience, I don't anticipate he'll be in a rush to get back to me.

Knowing now that we could refinance even with a discharged loan, I can see how not reaffirming would actually be to our benefit. It's not that I couldn't see it before, it's just that, it didn't make sense to be stuck with a loan that couldn't be touched in any way, shape or form because it didn't technically "exist." And it sucked to think that it would negatively affect our credit for as long as we thought it would.

You know what really sucks about this? I must have asked umpteen different attorneys, the credit bureaus, the mortgage company, etc. to clarify these things and none of them really had a straight answer. Best we could tell, it would be a derogatory discharge for the life of the loan plus ten years to fall off. And best we could tell, it couldn't be refinanced.

Knowing what we know now, I'm fairly certain we're going to ask the attorney to nix the whole process, if it's not too late. I'm fairly certain that, even if it is already reaffirmed, we still have time to walk away (I believe it's sixty to ninety days we have to change our minds).

But I still have questions...if we refinance this loan, is it no longer considered discharged?

Does Citi have any recourse to come after the rents that our tenants will be paying when we go into default?

How long can I drag out the foreclosure...the longer the better as it gives us more time to sock money away, look for a new job for my husband in the state we are looking to move to, and find and buy a new home.

When we do go to purchase a new home, what exactly will lenders see in regards to the house we are choosing to walk away from (if we go that route). Will they know that we have chosen to walk away and are in the middle of foreclosure proceedings? Will they even care, especially if we have a large chunk of cash down payment?

Does Citi have any legal recourse at all? Can they contact our tenants, take the rent from the tenants, etc.

And how do we keep this out of the newspaper?

So many questions! So much uncertainty. We just don't want to shoot ourselves in the foot, whether we walk away or keep the place.

Ideally...in two months Citi will start whistling a different tune in regards to modification. It only helps them...otherwise, they're stuck with a house that's valed 100K less than what we owe.

[Mizzou13]

This statement has me baffled in the context of a re-affirmation discussion. "...and at 100K underwater right now". You received a life-line on a bad investment and then tried to legally obligate yourself again.

If you are able to determine your attorney did not get the re-affirmation agreement executed, then it would seem the best alternative would be to stop paying any more on the property and live there until you were evicted after the foreclosure sale, rent a house during the 3-4 year seasoning period for a foreclosure and then finally obtain a new mortgage.

[mikeinsurpri]

Sweetpea3829 - the best advice is to take your time and read through the entire forum. Everything you are going through or are thinking has probably been thoroughly discussed here. Use this forum to educate yourself and look at everything. You'll find that a credit score is just a number, and once the BK takes it's course, time and responsible credit rebuilding will help the credit score increase. Also one of the most difficult things to do is to take out all personal feelings and look at this as a financial decision. So whatever you do, best of luck, hope it all works out.