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

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  • If the terms of your mortgage are simply too much for you to handle, in my non-attorney opinion, it is better to seek a modification before you file if you can. It can be a drawn-out hassle, but the money you may save just may be enough to allow you to skip the bk filing in the end. Alternatively, you may gain a more practical understanding of what the expectation of the bank will be after filing. It is for this reason that we delayed filing our Ch7 for a year. In that time, we were able to secure a modification that helped us out significantly. It didn't go far enough to save our bacon completely, but it was enough that we could determine with certainty that reaffirmation or not, we could afford to sustain payments on a ride-thru.

    We were fortunate to get the mod and avoid judgment on other debt until just before filing, but I would not want to be in the situation of having to pay our old mortgage payment on the ride-thru or risk losing the house altogether on the whim of the bank. We also retain our option to abandon the property at a later date with minimal repercussion, providing us significant bargaining power with the bank to modify it again after our discharge on April 1.

    That said, we still indicated an intent to reaffirm in our initial petition, regardless of our resolve to actually do it based upon the current lien value. Market value of the house has dropped by over 13% just since filing at the first of the year. The bank has not offered a reaffirmation, and I don't think we will be locking ourselves into anything anytime soon!
    Chapter 7 Filed 1/4/11
    Discharged No-asset 4/1/11
    And definitely NOT an attorney.

    Comment


    • For me, I don't see that it matters when the modification is done. I did mine just after filing and before discharge. I was completely done with the paperwork in less than 6 weeks. Doing it before the bankruptcy will usually involve words like "trial period", "trial modification", "forbearance" along with "we lost your file", "we never received it", "you have to apply again".

      I purposefully did mine during the pendency of the Chapter 7 bankruptcy discharge. You have to go in knowing that you'll lose the house to foreclosure and be prepared for the same. One should never depend on a modification to keep a home.

      Just my thoughts.
      Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
      Status: (Auto) Discharged and Closed! 5/10
      Visit My BKForum Blog: justbroke's Blog


      I am not an attorney. Any advice provided is not legal advice.

      Comment


      • I'm not sure if this was touched on in this sticky but what does a reaffirmation agreement look like from a bank for a Mortgage?? USbank sent me a one page letter for me to sign saying they are putting my past due payments in a balloon payment at the end of loan. This allowed me to pay and stay but after a few months I'm letting it go as it was to be surrendered in my Chapter 7 BK. I'm assuming this was in no way a reaffirmation agreement.

        Comment


        • Originally posted by ryan44 View Post
          I'm not sure if this was touched on in this sticky but what does a reaffirmation agreement look like from a bank for a Mortgage?? USbank sent me a one page letter for me to sign saying they are putting my past due payments in a balloon payment at the end of loan. This allowed me to pay and stay but after a few months I'm letting it go as it was to be surrendered in my Chapter 7 BK. I'm assuming this was in no way a reaffirmation agreement.
          The "official" form is issued by the Bankruptcy Court and it must exactly match the format. It's called Official Form B204 and is available here.

          Additionally, most Districts require the new coversheet (Official Form B27) to be filed as well.

          There is no such thing as a one-page reaffirmation agreement. The Court created the Official Form B204 and is available official form to make sure all disclosures are done and that the creditors are playing by the rules. Additionally, your attorney and/or the judge must sign off on any reaffirmation.

          So, when is a reaffirmation agreement not a reaffirmation agreement? When it's not on the Official Form B204 and is available official form and signed by your attorney and/or the judge.

          What you signed was probably a "recordable" modification agreement. I'm assuming that you had to have it notarized and return the originals to the bank?
          Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
          Status: (Auto) Discharged and Closed! 5/10
          Visit My BKForum Blog: justbroke's Blog


          I am not an attorney. Any advice provided is not legal advice.

          Comment


          • thank you for the info...No I had a modification before my chapter 7. This was just a 3 month trial period to "pay to stay" like alot of ppl are getting.

            Comment


            • Originally posted by ryan44 View Post
              thank you for the info...No I had a modification before my chapter 7. This was just a 3 month trial period to "pay to stay" like alot of ppl are getting.
              Until this post, I have never heard about (or read about) a 3 month trial period to "pay to stay". I did not have to do this and no one I ever heard of, has had to do this outside a "modification".

              The debt would be discharged, so there would be no trial period since that could be construed as a violation of the automatic stay and/or discharge injunction. (For my Chapter 7, I certainly would have loved to litigate it in the bankruptcy court. However the outcome would not be good since they'd probably say redeem, reaffirm or surrender.)

              I am pretty sure that what you signed was a modification. The reason why I tend to believe this, is that you indicated that US Bank had you sign "a one page letter for me to sign saying they are putting my past due payments in a balloon payment at the end of loan". That is a modification agreement hence the need to do the trial period. Still, I never had to do a trial period and I was behind on payments (due to the Chapter 13).
              Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
              Status: (Auto) Discharged and Closed! 5/10
              Visit My BKForum Blog: justbroke's Blog


              I am not an attorney. Any advice provided is not legal advice.

              Comment


              • My atty stated that if you continue to make payments, your actions are considered as reaffirming the debt. (Fla.) So how does that work in all of this?

                Comment


                • I don't know Florida law and I am not an attorney, but I think the distinction here is that paying is a way to affirm your intent to continue paying the lien off, which is not an official agreement of any sort. It demonstrates that foreclosure proceedings would be lacking merit with respect to whether you have intent to avoid settling the lien.
                  Chapter 7 Filed 1/4/11
                  Discharged No-asset 4/1/11
                  And definitely NOT an attorney.

                  Comment


                  • BellaLush is back and filed and post 341 meeting but not discharged. I will do a general post sharing my journey soon.

                    For now I am posting here cause I am actually reconsidering reaffirming. I talked to my lender and they told me if I don't reaffirm they will never post that I have paid my mortgage to the credit bureau's dinging my credit for years to come. And, I am sure the banksters will not offer me the best interest rate out there for a credit score I should have but don't because they won't update my credit score. We know that is just the way they role. Even thought they know I've paid them they will use the dinged credit score.

                    I am adding a significant amout of value to my home/land with my mom building a seperate home for herself on my land this summer, so short of an apocalypse, my home should alway's be worth more than the current mortgage. And, if it ever goes on the market it is an attractive buy with a seperate "rental" unit.

                    So, I don't see why I shouldn't reconfirm to save my credit score. I suppose I could petition the credit bureau's to reflect my payments with documentation and get them them to adjust my credit report before I apply for a refi but that seems like headache.

                    As you can see I am on the fence. Any comments would be helpful in making this decision cause I have to make it fast before I am discharged. I just found out yesterday that it could affect my credit for the life of the mortgage.

                    Plan for an apocalypse or spend a lifetime updating my crediting score......

                    Comment


                    • Hi Just, thanks for all your helpful posts. It seems I am in the same timeframe where you did your mod. I have filed my 7 and had my 341 meeting and am awaiting discharge. I did/will NOT reaffirm my 100K upside mortgage, have an 80/20 with BofA. Wanting to know: must I keep my payments current at this time, or could I fall behind a little and see if BofA will offer me a mod? Thanks.

                      Comment


                      • In some states, the bank can force abandonment of the property during the 60 day period. Whether they would or not is another story.
                        Chapter 7 Filed 1/4/11
                        Discharged No-asset 4/1/11
                        And definitely NOT an attorney.

                        Comment


                        • OK - Since this thread is still active I will ask here. I did post another seperate thread but might get better answers from the people subscribed here.

                          Will be filing a CH7 this week. Am currently 3 payments behind on mortgage with Chase. It is an FHA loan. No refi or second involved and Im not tooo upside down by AZ standards, and since I work from my house I would like to stay here.

                          Have rec'd official notice of default but that is it as I have agreed to a repayment (catch up over several months - not a modification). However, the first (and largest) payment in this plan of 2K is not due until May 11th and I will not be able to make that payment until that date. At that point I will officially be 4 payments behind (about 5K total).

                          I was originally planning on reaffirming since my only FINANCIAL risk is that the house gets foreclosed on later if I dont make the payments. Granted my credit will get creamed again since the FC will be seperate and newer than the BK.....but I really am pretty confident at my ability to make the payments in the future, especially after the repayment timeframe has past. My reasons for maybe reaffirming were to get the credit score boost (which is a loooww priority but part of it), but mostly because I thought it might make Chase more apt to keep working with me even though I will be filing BK before they get their 1st payment of the new plan?

                          Thoughts?

                          Comment


                          • In my non-attorney opinion:

                            Don't count on Chase doing you any favors. If you are upside down and continue to make payments, they are unlikely to push for abandonment or foreclose - whether you reaffirm or not. You however hold the cards by NOT reaffirming. Reaffirming an underwater loan merely serves to tie you back into the financial responsibility of it, with very little if any benefit to you. If you are having trouble making the payments now, why would you want to lock yourself back into that after the BK?

                            If the idea is to recover your credit rating, continued delinquency is not going to help you out one bit, and continuing to pay-and-stay can work for you in lieu of that - if the bank agrees to continue reporting. Likewise, if you continue to have trouble with it, they are not supposed to report to your credit unless you have specifically authorized them to do so after your case is closed.

                            Regardless, indicating an intent to reaffirm the mortgage in the petition reserves your right to do so if the bank agrees. It also prevents an immediate red flag to the bank that you may have no intention of continuing to make payments, a point that they can use to persuade the trustee to force you out of the property even faster than under normal foreclosure proceedings.

                            It's also worth noting the time limitation for The Mortgage Forgiveness Debt Relief Act, which though 2012, will not count extra income associated with the deficiency in a foreclosure against you for taxes due.

                            http://www.irs.gov/individuals/artic...179414,00.html

                            This act MAY NOT BE RENEWED! So if you lose the house after 2012, while you may not be on the hook for the deficiency directly, whatever deficiency you end up with between the mortgage balance and foreclosure sale price may count as taxable income. If you don't reaffirm, you don't have this potential liability. There are other conditions which will extend beyond the act which may prevent taxation, but the factors and risks should not be ignored if you are serious about reaffirming.
                            Chapter 7 Filed 1/4/11
                            Discharged No-asset 4/1/11
                            And definitely NOT an attorney.

                            Comment


                            • Snax,

                              Thank you for responding. Those are the items I need to think about....right now I need to the BK filed and started which will happen this week.....this all may be moot as it is possible I may end up in a CH13 in the end (see my other post for details on that), but for now I will keep thinking on the reaffirmation issue.

                              Thanks!

                              Comment


                              • I have been searching the site and I am wondering what people put on the form when they continue to live in the home but do not reaffirm the debt. There are options to surrender or retain and retain is followed by 3 options: redeem, reaffirm, other.

                                Any thoughts on this?

                                Comment

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